17 November 2014Actuarial & underwriting

Increasing formation of US captives to continue

The increasing formation of US captives, at a faster rate than in any other region, is likely to continue in the near term.

This is according to AM Best’s latest report on captives: ‘The World of Captive Ratings’, which added that AM Best currently rates over 200 captive ventures, representing a wide range of risk financing structures.

“Although the origins of the insurance industry in Europe had a discernible captive dimension, in its modern formulation captive usage has been and remains a predominantly US phenomenon,” said the rating agency.

In recent years, the US share of the global captive population, both by ownership or location, has increased to 58 percent according to the Marsh survey. AM Best added that over 80 percent of rated captives have a US connection.

“Nevertheless, in the past three years, AM Best has issued new ratings on captives domiciled in such widespread locations as Ireland, Luxembourg, Malta, Russia, Malaysia (Labuan), Micronesia and New Zealand.”

The rating agency explained that various commentators expect greater captive usage will develop in Europe and Asia in line with economic growth and evolving insurance market practice.

“This in turn should lead to more captives in those regions being rated, which Solvency II and other regulatory initiatives can also be seen to be encouraging,” said the rating agency.