19 November 2018Analysis

Bermuda, Cayman and Barbados captives outperform US in 2017

Captive insurers in Bermuda, the Cayman Islands and Barbados (BCIB) have persistently strong operating results that continued to outperform the US commercial market sector, according to AM Best.

An AM Best report, ‘Rated Bermuda, Cayman Islands and Barbados Captives Stay the Course’ found that rated captives in BCIB in 2017 strengthened their operating performance with increased risk awareness, loss control, as well as the ability to integrate sound risk management practices.

In 2017, the rated captive reported profitable financial results that were in line with historical averages. Total assets increased by 7.7 percent, and policyholder surplus increased to almost $10.5 billion, up 11.4 percent.

The sector’s total return on revenue (ROR) for 2017 was 35.3 percent, up from 27.3 percent in 2016.

Underwriting results declined, but were still considerably above the results posted by AM Best’s composite of US commercial casualty insurers. The captives’ five-year (2013-2017) average combined ratio far exceeded that of their peers in the US commercial casualty segment, by nearly 21 points.

Net premium earned by the rated captive increased by 1.9 percent in 2017, and net income improved.

“Premium growth for captive insurers is usually a function of insured exposure growth or a captive’s desire to withdraw or write additional or new risks when the opportunities arise,” AM Best said. “Two particular areas of interest of late have been cyber liability and medical stop loss insurance. Although these are certainly growth opportunities, most of AM Best-rated captives write either limited or no coverage for these risks.”

Capital levels among the rated captives are overall healthy, and more than supportive of the risks underwritten. During 2013-2017, these captives added more than $2.9 billion to their capital and surplus, after providing more than $1.0 billion in dividends, which translates into $3.9 billion in savings.

“Captive insurers remain the beneficiaries of very productive business models and strong loss control and risk management practices, culminating in solid underwriting profits and strong growth in surplus,” AM Best continued.

“AM Best believes that the captive segment, in general, will continue to outperform the US commercial casualty composite by a healthy margin, by managing the risks it knows better than any commercial insurer and by retaining risks within its risk tolerances.”