The US captive market is to remain stable for the rest of 2016, according to A.M. Best.
The rating agency’s annual report on the US captive market suggested that the stable outlook is based on continued modest economic improvements, GDP growth of approximately 2.5 to 3 percent, moderate loss cost inflation between 2 and 4 percent and an incremental rise in interest rates by the end of the year.
A.M. Best views “the captive market as stable from a ratings perspective and expects that the vast majority of captive insurers will have their ratings affirmed”.
The ratings agency said it expects “2016 to be another fruitful year of underwriting profitability for this niche segment”.
The US captive insurer composite (CIC) continues to outpace the underwriting and operating results of the US commercial composite, according to the report.
The results show that the CIC five-year average stood at 89.3 percent compared to the commercial composite of 101.2 percent. The CIC 10-year average totalled 88.9 percent compared to the 98 percent commercial composite.
The report also revealed that the CIC composite’s operating ratio of 71.8 percent still compared favourably to that of the commercial composite of 84.4 percent in 2015.
According to the report, net income for the CIC composite was strong in 2015, but approximately half of those profits were retained as dividends were paid to shareholders.
Despite this, capital and surplus has grown at a compound annual growth rate of 5.5 per year from $16.7 billion in 2010 to $21.9 billion in 2015.
Currently, there are 140 rated insurance companies in the US captive market, including 41 risk retention groups, 60 single parent captives, and 39 group captives.
The report revealed that in general, the market position of captive insurers continues to be described in “favourable terms such as profitable, stable, well-capitalised, and consistent”.
