A.M. Best Special Report: Rated Captives' Profitability, Distributions to Policyholders Soar


Profitability increased by 49% and policyholder dividends were up 73% for a composite of 194 U.S. captive insurance entities followed by A.M. Best Co. in 2010. Underwriting income increased as captives showed underwriting discipline that resulted in significant declines in premium. Higher realized capital gains allowed some decreases in rates for profitable accounts as some captives sought to compete in the continuing soft market. But overall, captives seemed to be holding the line on pricing while returning significant policyholder dividends to bolster retention rates.

  • Captives' short-duration, high-quality asset portfolios have recovered substantially from the recent financial crisis, bringing most captives' investments back to pre-crisis levels.
  • Policyholder dividends of $454 million in 2010 marked an increase of 73% from 2009 as captives sought to reward insureds that did not flee to the commercial market for price.
  • As the soft property/casualty market persists, many management teams of rated captives have told A.M. Best analysts that they continue to hold the line and will let business go if the rates are too low.
  • Captive formations go on even as the commercial insurance market remains soft, and in the midst of an economic crisis, new captive domiciles are finding it difficult to establish their presence while well-established domiciles update their captive legislation to adapt to the industry's ever-changing needs.
  • Risk retention groups (RRG) are hoping for a long-awaited expansion of their turf beyond liability coverage under proposed federal legislation that would allow RRGs to write commercial property insurance.

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Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Company
Brendan Noonan, 908-439-2200, ext. 5370
Senior Manager Business Analyst
Carole Lovell, 908-439-2200, ext. 5445
Public Relations Associate
Steven Chirico, CPA, 908-439-2200, ext. 5087
Assistant Vice President
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations

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