AM Best analysts have found captive insurance companies in Bermuda, Cayman Islands and Barbados to be outperforming the segment’s counterparts in the commercial casualty sector.
In addition, a new milestone was reached in 2018 when net premiums earned surpassed $3.5 billion for the first time.
A new AM Best market report explains how its rated captive composite reported a pre-tax income of approximately $1 billion, an 8.3% increase over the previous year.
The combined ratio for the Bermuda, Cayman Islands and Barbados (BCIB) captive composite deteriorated slightly in 2018 by a percentage point to 85.2%; however, the five-year average CR of 80.8% was nearly 20 points better than the 100.4% CR posted by the BCIB captives’ peers in the commercial casualty segment.
Between 2014 and 2018, BCIB captives added $2.7 billion to their year-end capital and surplus and paid $1.4 billion in dividends.
This translates into nearly $4.2 billion during this period either remaining with these captives or paid back to policyholders and stockholders instead of going to the commercial market.
AM Best says the new high-water mark in net premiums earned comes as a result of strong economic growth in the US, and companies taking on new risk opportunities such as self-funded employee health insurance programs and cyber liability.
According to the report, captives no longer are formed solely to protect against the lack of available capacity or peaks in the market cycle. Instead, they have become a solution for companies interested in flexibility, risk financing and more hands-on risk management for enhanced safety, loss control and loss prevention.
Captives have become more integral to corporations around the globe, and gaining efficiencies and improving margins through loss prevention and lower reinsurance costs have played important roles.
AM Best adds that BCIB segment’s ability to keep loss ratios within a tight band speaks to the risk-transfer strategies of companies’ management teams, despite recent higher-than-average catastrophe loss years.
