Market Overview

Best's Market Segment Report: U.S. Rated Captives Sustain Their Strong Outperformance Over Commercial Insurers in 2017


The financial performance of U.S. captive insurance companies rated by A.M.
remained exceptionally strong in 2017 and continued to
outperform its counterparts in the commercial casualty sector, according
to a new A.M. Best report.

The new Best's Market Segment Report, titled, "For the Rated
Captives, It Is Déjà Vu, All Over Again," notes that despite the
positive results, pretax profit declined by nearly 18% year over year to
$1.3 billion. Despite the decline, the rated captive sector posted a
favorable combined ratio of 91.4% and a net underwriting profit of
$390.6 million. According to the report, worse-than-historical
underwriting results in the commercial multi-peril line, primarily due
to hurricanes Harvey, Irma, and Maria, as well as in Texas, owing
primarily to Hurricane Harvey, had a materially adverse impact on the
captive insurance composite's 2017 results. Texas is ranked as the
third-largest state among U.S. captives. A.M. Best's captive composite
continues to outperform the broader commercial market, as the 86.4
five-year combined ratio average compares favorably with the 99.9 posted
by the commercial composite.

Surplus growth for U.S. captives has grown by a healthy 5% per year
since 2013. The report states that the segment's strong results are a
testament to their close alignment of interests with stakeholders and
deeply ingrained risk management culture. Between 2013 and 2017, surplus
of rated U.S.-domiciled single-parent captives increased to $9.4 billion
from $7.8 billion, while the amount of dividends paid to parents during
this five-year period was $1.2 billion. Therefore, during this period,
more than $2.9 billion ($1.7 billion from surplus growth plus $1.2
billion in dividends) went into the pockets of the single-parent
captives instead of the commercial market.

Risk retention groups (representing 14% of A.M. Best's captive composite
premium) saw its performance improve in 2017 compared with 2016, with a
combined ratio of 94.9%, two points better than the previous year.

A.M. Best views operating performance as a leading indicator of future
balance-sheet strength and long-term financial stability. The analysis
of operating performance focuses on the levels of profit, stability,
diversity, the sustainability of earnings and the interplay between
earnings and prior-year liabilities. Currently, nearly 90% of the
captives A.M. Best rates have "Excellent" or better Long-Term Issuer
Credit Ratings, confirming the strength of this market segment. Although
captives have various structures, common themes including close
proximity to the risks written, high quality data and the involvement
and support of captives' owners, which often results in performance
metrics that exceed those of their commercial counterparts.

For the full copy of this market segment report, please visit

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