The number of US domestic captives continued to rise in 2021, although the formation of new risk retention groups has slowed, AM Best has claimed in its latest report on the US captives market.
According to AM Best, in its latest report entitled: “US Captive Insurance: Stepping In
Amid Capacity and Pricing Challenges”, operating profits declined, but operating ratios are still lower than those of their commercial casualty peers and underwriting ratios have improved.
Investment returns remain a challenge, warned the rating agency, but added that surplus continues to grow owing to underwriting profitability.
As the hard market goes on, captives’ utility and benefits to owners and policyholders broaden, said AM Best.
“The operating performance of the US captives rated by AM Best continues to surpass that of their commercial market peers,” said the report. “Their inherent flexibility and control in managing risk drives profitability and retained earnings while creating value for their policyholders and stakeholders, regardless of market conditions.”
However, AM Best pointed out that the past few years have brought several new challenges for the segment. Not only have hardening market conditions been exacerbated by the pandemic, but also many non-insurance corporate parents and small to medium-sized enterprises have had to consider potential liabilities and risks for communicable diseases as part of their commercial property policies, in addition to business interruption and contingent business interruption.
Despite this the rating agency said that few of the rated captives have been significantly affected by these issues to date. Although some captives had pandemic-related coverages in their policies, no significant amounts have been triggered under their policy language.
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