The rating affirmations reflect Starr China’s supportive risk-adjusted capitalization under a strengthened surplus position, and an improved operating expense ratio. In addition, Starr China receives business and operational support from Starr International Company, Inc. (SICO) and its insurance subsidiaries, as well as a capital commitment from Starr Insurance & Reinsurance Limited (SIRL), a company within SICO that is a 20% shareholder of Starr China. Starr China also assumes overseas treaty business ceded from the group, which has accounted for a substantial portion of the company’s total gross premiums written since 2015.

Over the past few years, Starr China managed to de-risk a substantial portion of its underwriting risk by running off its motor business, and by focusing on underwriting non-motor commercial and specialty lines of business. The company reported favorable after-tax profits, mainly due to a gain from investment property disposal in 2016. Earnings were fully retained as surplus during the year. Operating expenses were further reduced, as the elimination of the motor business was completed in 2016.

An offsetting rating factor is the challenge the company faces in achieving its business plan under China’s competitive market conditions. Moreover, the stop-loss reinsurance arrangement with SIRL was terminated in 2016. Another offsetting rating factor is the company’s increasing exposure to lower-frequency and potentially high-severity risks, located domestically and abroad, due to the change in portfolio mix to more commercial business, which may generate greater volatility in its underwriting results going forward.

While positive rating actions are not likely in the near term, negative rating actions could result from a continued and material adverse deviation from the company’s business plan, a significant decline in the risk-adjusted capitalization, or a reduced level of support provided by SIRL or SICO.

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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