Captive Insurers Repeat Strong Financial Performance: A.M. Best

August 4, 2017

U.S. captive insurance companies rated by A.M. Best ended 2016 in strong form, with a 16 percent year-over-year increase on pretax operating income to $1.6 billion, which included more than $803 million in underwriting profit, according to an A.M. Best report.

According to the Best’s Special Report, titled, “Groundhog Day: More of the Same Strong Performance for the U.S. Rated Captives,” although the sector’s revenue accounts for less than 10 percent of the estimated global commercial market of $800 billion, captives have become an integral and well-established part of the overall market.

The rated captive sector recorded a combined ratio of 82.9 in 2016, which is a 4.0-point improvement over the previous year and 5.3 points better the five-year average.

Additionally, A.M. Best’s captive composite continues to outperform the broader commercial market, as the 88.2 five-year combined ratio average compares favorably with the 100.1 posted by the commercial composite.

Premium increased modestly for the A.M. Best-rated captive sector, evidenced by a 3.2 percent rise in net premiums in this sector after two years of slight percentage declines. This minimal year-over-year change in premium is typical of captives whose mission is to provide its insureds with availability and price stability. Although captives are not intended to be profit-making entities, their earnings are viewed as insurance expense savings that stakeholders would otherwise pass on to traditional commercial insurers. According to the report, during the past five years, more than $3 billion of after tax profits were garnered and went into the pockets of rated U.S. single parent captives and their parents, instead of being spent in the commercial market.

Risk retention groups (representing 13 percent of A.M. Best’s captive composite premium) recorded a weaker performance in 2016 as the combined ratio deteriorated to 97.0 from 88.4; however, the composite was still profitable.

Source: A.M. Best

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