Captive insurers domiciled in Bermuda and the Cayman Islands experienced improved premium leverage ratios, as capital grew by a healthy 8 percent, buoyed by strong operating earnings last year, according to an A.M. Best report.
The results suggested that the levels of growth were profitable and in line with historical averages, marking it the fifth year of above-par operating results.
The 2016 results measured a return on revenue of 23 percent, down from 24 percent the previous year.
However, underwriting results declined somewhat, to a combined ratio of 85.3 in 2016 from 80.0 in 2015.
In addition, the Bermuda and Cayman five-year average, between 2012 and 2016, combined ratio of 82.5 far exceeded the US commercial casualty segment by more than 16 points.
The report also found that Bermuda and Cayman captives saw their net premiums earned decrease for the first time in five years, to 4.7 percent, compared with the average 7 percent for the previous four years.
Despite difficult market conditions and challenges, Bermuda and Cayman have also reported strong double-digit return on equities, with a five-year compound average growth rate of 13 percent for operating return on equities.
A.M Best said of the results: “Overall prognosis for captive insurers is a healthy one. This view is based on the success of the captive business model, the efficiencies gained from the use of alternative risk transfer and the benefits of increased risk awareness and loss control, as well as the ability to integrate sound risk management practices throughout the organisation, all of which lead to operating results that outperform the commercial market.”