AM Best-rated captive insurance companies have recorded the largest premium increase in a decade, according to the ratings company.
The statistic was published in AM Best’s market segment report, ‘Feasibility and Utility Sustain Captives’ Excellent Profitability.’
The report also noted that AM Best-rated captive insurance companies doubled pre-tax operating income over the previous year.
In addition, AM Best’s captive insurance composite continues to outperform the commercial casualty composite by significant margins.
This was evidenced by the captive composite’s five-year average combined ratio of 83.9, compared with the casualty composite’s 98.0.
AM Best says this out-performance has led to substantial growth in captives’ retained earnings and surplus and has resulted in billions of dollars in savings for captive owners.
The rated captive composite’s combined ratio of 80.8 in 2022 was a 4.6 per cent improvement over the previous year. This was primarily attributable to a 2.9 per cent decline in the underwriting expense ratio.
Following a number of years of “essentially flat growth”, direct premiums written among the group of rated captives rose sharply year over year by 21 per cent. AM Best says the rise in premiums was due to rate increases from inflationary pressures and the continued hardening of the reinsurance market.
The report says “as the market landscape continues to evolve, captives remain a reliable and effective solution for managing risks and optimising financial outcomes.”
Commenting on the report, Dan Teclaw, director of AM Best, says: “Even in less turbulent markets, captives can fine-tune their risk appetites to maximise owner returns on capital through appropriate risk appetite and selection in underwriting.”
Fred Eslami, associate director at AM Best, comments: “Although captives are not created with the intention of being profit centres for their organisations, they are highly profitable, and barring any unforeseen systemic catastrophic events, captives’ results should again be favourable in 2023.”
