U.S. Captive Insurers’ Underwriting Income Drops; Investments Improve

August 9, 2010

Net income doubled in 2009 over 2008 for a composite of 195 U.S. captive insurers followed by A.M. Best Co., driven by the recovery of the industry’s investments. Realized capital gains totaled $82 million for 2009, compared with $1.2 billion of realized capital losses in 2008.

Net underwriting income actually decreased from the prior year as captives continued to focus on providing coverage and stable pricing to their constituents and not on producing large underwriting profits.

Other results:

  • Captives recorded policyholder dividends of 3.4 percent in 2009, down 1.2 percentage points from 2008, as companies rebuilt surplus that was destroyed during the crisis.
  • Net investment income was $1.6 billion in 2009, compared with $1.9 billion in 2008.
  • Amid continued softening market conditions, many captives have told A.M. Best they continue to hold the line and will let business go if premium rates are too low.
  • Captive formations go on even as the commercial insurance market continues to soften, and in the midst of an economic crisis, new captive domiciles are finding it difficult to establish their presence in the market.
  • The outlook for the captive industry remains stable.
  • Many well run risk retention groups (RRG) continue to thrive despite the soft market, changing market profiles and economic turmoil; within A.M. Best’s universe of 32 letter-rated RRGs, admitted assets and policyholders’ surplus at Dec. 31, 2009 were up 6.9 percent and 19.5 percent, respectively, from Dec. 31, 2008.

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