The captive market remains “exceptionally strong and continues to outperform its counterparts in the commercial casualty segment”, according to A.M. Best’s 18th annual view of the rated captive industry.
A.M. Best noted that the biggest challenge for them was to “find a new or interesting way to describe the persistently good news”.
The report revealed that there are an estimated 5,600 captive insurers operating throughout the world, with approximately 3,090 of those domiciled in the US.
It also suggested that changes in captive laws are making formations even more attractive. Bermuda, the Cayman Islands and Barbados have historically been popular captive domiciles, but more recently new captive has been formed in the US, with Vermont, Utah and Delaware now ranking in the top five domiciles in the world.
The report said that changes to the Internal Revenue Service’s Section 831(b) should accelerate the growth in new formations in the US.
The rating agency captive insurance composite ended last in “strong form”, with a pretax profit of $1.3 billion. Although this figure was down almost 18 percent from the $1.58 billion reported in 2016, the US captive market continues to “fulfil its mission”.
Despite the decline, the composite posted a combined ratio (after dividends) of 91.4 percent and a net underwriting profit of $390 million.
The report noted that Hurricane Harvey likely played a material role in the drop, given the substantially weaker-than-average underwriting results reported in commercial multi-peril and in Texas—the state accounted for 10 percent of all direct premiums written last year and ranked as the third-largest state among US captives.
In the report, A.M. Best said: This captives segment still generates exceptional underwriting results year over year—hence, our favourable view of the segment regardless of market cycles.”
It added: “The strong results are a testament to the segment’s close alignment of interests with stakeholders and deeply ingrained risk management culture. Our favourable view also reflects the composite companies’ exceptionally conservative reserve philosophies and their close proximity to insureds, which allows for the ability to quickly identify and manage risk as it emerges.”
A.M. Best currently rates about 140 captives in the US and more than 200 worldwide.
