27 November 2019Analysis

Offshore captives outperform commercial casualty sector: AM Best

Captive insurance companies in Bermuda, Cayman and Barbados rated by AM Best have outperformed the segment’s counterparts in the commercial casualty sector, the rating agency said.

Meanwhile, in 2018 net premiums earned by captives in Bermuda, Cayman and Barbados surpassed $3.5 billion for the first time.

In a market segment report titled Rated Bermuda, Cayman Islands, and Barbados Captives Steadily Navigate Market Cycles, AM Best said its rated captive composite reported a pretax income of approximately $1 billion, an 8.3 percent increase over the previous year.

The combined ratio for the Bermuda, Cayman Islands and Barbados (BCIB) captive composite deteriorated slightly in 2018 by a percentage point to 85.2. But the five-year (2014-2018) average combined ratio of 80.8 was nearly 20 points better than the 100.4 combined ratio posted by the BCIB captives’ peers in the commercial casualty segment.

The BCIB segment’s ability to keep loss ratios within a tight band speaks to the risk-transfer strategies of companies’ management teams, despite recent higher-than-average catastrophe loss years, AM Best said.

Between 2014 and 2018, BCIB captives added $2.7 billion to their year-end capital and surplus, and paid $1.4 billion in dividends.

The report argued that captives are no longer are formed solely to plugs gaps in available capacity or at peaks in the market cycle. Increasingly they are seen as a way of delivering flexibility and enhanced risk financing, and a more hands-on risk management for enhanced safety, loss control and loss prevention.