Best’s Special Report: Rated U.S. Captives Build Upon Strengths to Achieve Another Strong Full-Year Result in 2018

OLDWICK, N.J.--()--U.S. captive insurance companies rated by AM Best continued their run of strong financial results in 2018, as well as their outperformance of the segment’s counterparts in the commercial casualty sector, according to an AM Best special report.

The new Best’s Special Report, titled, “Rated Captives Continue to Build Upon Strengths,” states that the rated captive composite reported a pretax profit of approximately $1.1 billion. Although this result is down 16% from the $1.3 billion reported in 2017, the market remained profitable. The composite posted a post-dividend combined ratio of 96.0% in 2018 and a net underwriting profit of $160.0 million. Net premiums written increased in 2018 by 4.4% as well, reversing the 6.7% decline reported in the previous year, driven mainly by premium increases in medical professional liability and commercial multi-peril insurance lines of business.

AM Best’s favorable view of the captive segment is driven partly by the segment’s continuously positive underwriting results every year. These strong results are testament to the segment’s close alignment of interests with stakeholders and deeply ingrained risk management culture. The favorable view also reflects the composite companies’ exceptionally conservative reserve philosophies and their close proximity to insureds, which allows them the ability to quickly identify and manage risk as it emerges. AM Best’s captive composite also continues to outperform the broader commercial market, as the 88.8% five-year combined ratio average compares favorably with the 99.9% posted by the commercial composite.

Between 2014 and 2018, captives added $3.1 billion to their year-end surplus and paid $1.6 billion in stockholder dividends and $1.9 billion in policyholder dividends. Therefore, $6.6 billion during this period remained with the captives or was paid back to their policyholders and stockholders instead of going to the commercial market.

Risk retention groups (representing 15% of AM Best’s captive composite premium) saw its performance weaken in 2018 compared with 2017, with a combined ratio of 100.3%, nearly six percentage points worse than the previous year, owing to higher loss ratios and soft market pricing.

Captive insurers remain nimble and stable despite headwinds from low interest rates, changes in U.S. tax law and prolonged periods of soft market conditions, which also demonstrates how well these companies readily identify emerging risks, as well as their ability to take advantage of reinsurance pricing when opportunities arise. Captives in general tend to stay away from alternative investment strategies despite the low interest rate environment. Capital preservation is the main goal of captives, which they achieve via conservative investment. AM Best continues to monitor captives’ investment portfolios, diversification efforts and strategies.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=288168.

Susan Molineux, director, and Fred Eslami, associate director, will take part in an AM Best-hosted webinar on the state of the captive insurance market on July 30, 2019, at 11 a.m. (EDT). To view the complimentary webinar, please visit the registration page.

AM 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 © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts

Susan Molineux
Director
+1 908 439 2200, ext. 5829
susan.molineux@ambest.com

Fred Eslami
Associate Director
+1 908 439 2200, ext. 5406
fred.eslami@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com

Contacts

Susan Molineux
Director
+1 908 439 2200, ext. 5829
susan.molineux@ambest.com

Fred Eslami
Associate Director
+1 908 439 2200, ext. 5406
fred.eslami@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644
james.peavy@ambest.com