Rated Bermuda, Cayman Islands and Barbados (BCIB) captive insurance companies have continued to outperform US commercial casualty peers, with a combined ratio approximately 13 percentage points better over the most recent five-year period, suggests a recent AM Best report.
The report notes that the present hard insurance market has provided growth opportunities for the BCIB captive industries, while their operating results correlate highly with those of captives domiciled in the US, and continue to outpace those of their peers in the commercial casualty composite.
Robert Gabriel, financial analyst at AM Best, commented, “The BCIB captive composite’s income generation has been remarkably consistent and tends to be driven by its favourable underwriting results, which are well-supported by the captives’ familiarity and extensive knowledge of the risks that they cover.
“Return on revenue, which takes into account a company’s net income relative to net premiums earned, demonstrates how highly profitable the BCIB captives are.”
The report states that all but one of the 25 AM Best-rated captives in the BCIB composite reported positive net income in 2021. The composite’s net income total of $1.3bn in 2021 was a 4.7% increase over the previous year.
The rating agency also notes that despite the composite’s return on revenue declining since 2019, it is still almost three times that of the commercial casualty composite’s average.
The BCIB composite’s combined ratio was flat in 2021, up by only 1.4 points to 86.2. In 2021, 18 of the 25 captives in the composite recorded positive underwriting results, while 24 captives recorded positive overall earnings for the year.
Meanwhile, the report observes that, unlike traditional P/C insurers, captives are not under pressure from stakeholders to generate returns on equity or revenue.
It adds that from 2017 to 2021, the BCIB captives were able to grow surplus by $2.3 billion, even after paying out $1.7 billion in dividends.
This translates into $4 billion in savings from the use of captive vehicles as an alternative to organisations using the commercial insurance market.
AM Best expects that 2022 surplus gains may be small, as unrealised losses on fixed-income assets due to rising interest rates through the year may fully offset operating income.
Yet, as interest rates rise, captives should benefit from higher reinvestment rates on their fixed-income assets, says the report.
According to AM Best, of the 200 captives it rates around the world, 25 are based in BCIB domiciles. Approximately two-thirds of the rated BCIB captives are owned by US-based companies or, in the case of group captives, aligned with US groups and associations.
The remaining rated captives are primarily single-parent captives sponsored by companies in Japan, Taiwan, Colombia, Saudi Arabia, and Europe.