Best’s Market Segment Report: U.S. Rated Captives Sustain Their Strong Outperformance Over Commercial Insurers in 2017

OLDWICK, N.J.--()--The financial performance of U.S. captive insurance companies rated by A.M. Best remained exceptionally strong in 2017 and continued to outperform its counterparts in the commercial casualty sector, according to a new A.M. Best report.

The new Best’s Market Segment Report, titled, “For the Rated Captives, It Is Déjà Vu, All Over Again,” notes that despite the positive results, pretax profit declined by nearly 18% year over year to $1.3 billion. Despite the decline, the rated captive sector posted a favorable combined ratio of 91.4% and a net underwriting profit of $390.6 million. According to the report, worse-than-historical underwriting results in the commercial multi-peril line, primarily due to hurricanes Harvey, Irma, and Maria, as well as in Texas, owing primarily to Hurricane Harvey, had a materially adverse impact on the captive insurance composite’s 2017 results. Texas is ranked as the third-largest state among U.S. captives. A.M. Best’s captive composite continues to outperform the broader commercial market, as the 86.4 five-year combined ratio average compares favorably with the 99.9 posted by the commercial composite.

Surplus growth for U.S. captives has grown by a healthy 5% per year since 2013. The report states that the segment’s strong results are a testament to their close alignment of interests with stakeholders and deeply ingrained risk management culture. Between 2013 and 2017, surplus of rated U.S.-domiciled single-parent captives increased to $9.4 billion from $7.8 billion, while the amount of dividends paid to parents during this five-year period was $1.2 billion. Therefore, during this period, more than $2.9 billion ($1.7 billion from surplus growth plus $1.2 billion in dividends) went into the pockets of the single-parent captives instead of the commercial market.

Risk retention groups (representing 14% of A.M. Best’s captive composite premium) saw its performance improve in 2017 compared with 2016, with a combined ratio of 94.9%, two points better than the previous year.

A.M. Best views operating performance as a leading indicator of future balance-sheet strength and long-term financial stability. The analysis of operating performance focuses on the levels of profit, stability, diversity, the sustainability of earnings and the interplay between earnings and prior-year liabilities. Currently, nearly 90% of the captives A.M. Best rates have “Excellent” or better Long-Term Issuer Credit Ratings, confirming the strength of this market segment. Although captives have various structures, common themes including close proximity to the risks written, high quality data and the involvement and support of captives’ owners, which often results in performance metrics that exceed those of their commercial counterparts.

For the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=276400.

A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts

A.M. Best
Fred Eslami, +1-908-439-2200, ext. 5406
Associate Director
fred.eslami@ambest.com
or
Susan Molineux, +1-908-439-2200, ext. 5829
Associate Director
susan.molineux@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best
Fred Eslami, +1-908-439-2200, ext. 5406
Associate Director
fred.eslami@ambest.com
or
Susan Molineux, +1-908-439-2200, ext. 5829
Associate Director
susan.molineux@ambest.com
or
Christopher Sharkey, +1-908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +1-908-439-2200, ext. 5644
Director, Public Relations
james.peavy@ambest.com