6 August 2018Analysis

US captives outperformed commercial insurers in 2017: AM Best

US captive insurance companies rated by AM best had exceptionally strong financial performance in 2017, and continued to outperform their counterparts in the commercial casualty sector.

This is according to an AM Best report, “For the Rated Captives, It Is Déjà Vu, All Over Again,” which said that despite the positive results, pretax profit declined by nearly 18 percent year over year to $1.3 billion.

The rated captive sector reported a favourable combined ratio of 91.4 percent and a net underwriting profit of $390.6 million.

Worst-than-historical underwriting results in the 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.

The rated captives also continue to outperform the broader commercial market, as the 86.4 five-year combined ratio average compares favourably with the 99.9 posted by the commercial composite.

Since 2013, surplus growth for US captives grew by 5 percent per year.

AM Best stated 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 US-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. 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 - which represent 14 percent of AM Best’s captive composite premium - improved its performance in 2017 compared with 2016, with a combined ratio of 94.9 percent, two points better than the previous year.