A.M. Best’s universe of rated captives reported a pre-tax profit of roughly $1.1 billion in 2018, and while this represents a decline from the $1.3 billion posted in 2017, the ratings agency holds a favourable view of the sector, which is in part a result of consistent positive underwriting results.
In 2018, A.M. Best reveals that the rated captive composite, which is comprised of approximately 200 captives worldwide (140 of which are domiciled in the U.S.), posted a post-dividend combined ratio of 96% and a net underwriting profit of $160 million.
According to the ratings agency, a closer look at 2018 reveals that the muted, albeit still positive underwriting result is likely in response to catastrophe events, including hurricane Michael and Florence, and the California wildfires.
The fact the sector continuously produces a positive underwriting return is a key driver of A.M. Best’s favourable market view, and the ratings agency states that these strong results are testament to the sector’s close alignment of interests with shareholders and an embedded culture of risk management.
The majority of captives in A.M. Best’s universe are based in the U.S., and according to analysis, the number of U.S. captives remained relatively flat in 2018, although this wasn’t the case with the number of new formations and closures.
Total active captives in the U.S. in 2018 totalled 3,123, comprised of 203 new captive formations and 226 captive closures, which represents a year-on-year change of -1.1%.
In the period 2014 – 2018, captives added a total $3.1 billion to their year-end surplus and paid $1.6 billion in stockholder dividends and $1.9 billion in policyholder dividends.
“Captive insurers remain nimble and stable despite headwinds from low interest rates, changes in U.S. tax law and prolonged periods of soft market conditions, which also demonstrates how well these companies readily identify emerging risks, as well as their ability to take advantage of reinsurance pricing when opportunities arise,” explains A.M. Best.