3 August 2016USA analysis

Captive insurers encounter strong growth in 2015

Captive insurers performed well in 2015 with a pre-tax operating income of $1.4 billion, a rise of 13.5 percent from 2014, according to a report on the market by AM Best.

The report, titled ‘US captive insurers benefit from core companies’ shows a net written premium of $4.9 billion in 2015, due to an increase in cessions.

However, the net income for the captive insurance composite, while strong at $1.2 billion, remained relatively flat compared with the previous year.

In addition, approximately half of the profits were retained, as dividends were paid to shareholders, while the net investment income sharply increased by nearly 10 percent in 2015 after decreasing by 2.8 percent the year before.

Overall, the US rated domestic captive group continues to outpace the underwriting and operating results of the US commercial insurance composite. This is evident in the captive composite’s 89.3 percent and 88.9 percent for five and 10-year combined ratios, compared with 101.2 percent and 98 percent respectively, for the commercial composite.

The report demonstrated that the overall results for the rated domestic captive group should continue in 2016. This is despite the modest economic improvement, gross domestic product growth of roughly 2.5 percent to 3 percent moderate loss cost inflation between 2 percent to 4 percent and an incremental rise in interest rates by year-end 2016.

AM Best will present its annual webinar on the ‘state of the captive insurance market’ on Friday, August 5 from 2pm to 3pm (EDT).