The balance sheet strength of European captives currently rated by A.M. Best is very strong, and, the broad understanding and detailed knowledge of the portfolios they cover is driving robust underwriting performance.
In a recent report, “European Captives 2019 – Building Block Rating Considerations”, global financial services ratings agency, A.M. Best notes that the ratings of European captives have been stable through the past year, with all of the ratings affirmed and stable outlooks maintained across the board.
The ratings agency finds that all of the European captives that it currently rates have balance sheet strength assessments of very strong, which the firm says is typically underpinned by the strongest level of risk-adjusted capitalisation.
At the same time, the majority of European captives rated by A.M. Best benefit from a strong operating performance, and, ultimately, they fulfil the majority of their parent organisation’s insurance requirements, absent the need for any material levels of primary protection placed outside of the captive.
Mathilde Jakobsen, Director, and co-author of the report, said: “The robust underwriting performance of single-parent captives is underpinned by their extensive and detailed knowledge of the portfolios they cover, which supports adequate pricing.
“Therefore, if achieving an underwriting profit fits with their strategic aims, the captives typically achieve the metrics required for a strong operating performance assessment.”
The report also states that while innovation, and specifically how captives could reap the benefits of innovation, is increasingly an agenda point at board level, most captives currently don’t view innovation as a major growth driver.
“AM Best believes that innovation is a dynamic and ongoing long-term process that can take many forms and is not limited to a specific type of innovation or technological development,” said Konstantin Langowski, Financial Analyst at A.M. Best.
“Captives are in a unique position to benefit from the close relationship and integration with their parent organisations, as they have access to potentially very detailed and unrivalled data sources, which could be used for big data analytics or to foster agile new coverage development,” added Langowski.
