A new AM Best report shows that, despite the COVID-19 pandemic, Bermuda, Cayman Islands and Barbados (BCIB) captives continue to outperform the U.S. commercial casualty composite on underwriting and operating profitability.
The rating agency noted that its BCIB group saw steady net earned premium growth of 11% in 2020, due to the addition of new risks from the hardening commercial lines market and accompanying economic growth.
After a relatively high number of large fire losses in 2019, the group had a more normal year in 2020, reflected in an aggregate combined ratio that improved to 85.1 from 91.2.
The BCIB group’s five-year (2016-2020) combined ratio of 86.2 also was significantly below the 100.4 posted by its U.S. commercial casualty peers.
AM Best considers the captive group’s overall capital levels to be sound and able to support the risks underwritten, with capital continuing to grow and remaining strong even after dividend payments.
“The benefits and consistency of local captive management and a captive-friendly regulatory environment have enabled Bermuda, the Cayman Islands and Barbados to not just maintain, but even expand, their foothold in the captive market,” said John Andre, managing director, AM Best.
From 2016 to 2020, even after paying almost $1.8 billion in dividends, the BCIB captives added $2.5 billion to their capital and surplus, which translates into $4.3 billion in savings from the use of captive vehicles instead of commercial insurers.
And although captives are not under pressure from stakeholders to generate return on equity (ROE) or revenue (ROR), the group still has consistently posted near-double-digit ROE, with a five-year average of 10%.
ROR also has been very steady, averaging approximately 30% over the last five years—about three times that of the commercial lines composite average.