12 November 2018Actuarial & underwriting

European captives stable in 2018: AM Best

European captive ratings have been stable through the past year, with most ratings affirmed and stable outlooks maintained, according to an AM Best report.

The Best’s Special Report, ‘European Captives - Building Block Rating Considerations’, looks at the key rating considerations as they apply to European captives, providing details into the captives’ balance sheet strength, operating performance, business profile and enterprise risk management.

All of the European captive currently rated by AM Best have balance sheet strength assessments in the two highest categories: strongest and very strong.

The balance sheet strengths are underpinned by risk-adjusted capitalisation, which tends to be at the strongest level as measured by Best's Capital Adequacy Ratio (BCAR).

Risk-adjusted capitalisation is assessed as strongest when the standard BCAR score is above 25 at the 99.6 percent value at risk (VaR) confidence level.

At year-end 2017, most rated European captives had BCAR scores significantly above 25 at 99.6 percent VaR confidence level, and the average for the total population was above 60. Only one captive had a score below 25, and all the others had scores of at least 50.

The report noted that the robust risk-adjusted capitalisation of the rated captives is also reflected in their excellent regulatory solvency ratios, with available capital usually exceeding capital requirements significantly.

European parents of captives are supportive of the high levels of capital held, recognising that the captive should be able to absorb worst-case scenario losses without requiring additional funding.

AM Best’s data is based on the captives that have European parent groups, and a few of the captives profiled in the report are domiciled in Bermuda but have been included as they are the captives of European groups.

Other domiciles included in treport are Switzerland, the Isle of Man, and Guernsey.