Rated captives continue to outperform commercial insurers in both underwriting and operating profitability, according to AM Best’s latest Market Segment Report.
The ratings agency data highlighted that the five year-average combined and operating ratios of captive insurance companies (CIC) outperformed those of the commercial casualty composite (CCC) by substantial margins.
CIC’s recorded five year combined ratios before dividends of 83.9%, compared with the CCC’s combined ratio of 98%.
Prior to 2022, premiums had been relatively flat, with a compound annual growth rate of just under 2%
“Lower premium growth has long been a feature of captives, as these companies have more control managing and monitoring their risks and setting actuarial pricing,” the ratings agency said.
In 2022, however, the segment saw the largest increase in direct premiums written (DPW) in ten years at approximately 21%.
AM Best said the rise in premiums was due to rate increases stemming from inflationary pressures and the continued hardening of the reinsurance market, which forced many captives to take on higher retentions than the year before.
This was particularly true for single parent captives (SPCs), which saw a 59% jump in net premium in 2022.
“Unlike some of their peers in the commercial market, captives have not been materially impacted by the higher frequency or severity of weather and natural catastrophes in the past five-year period,” the report said.
One of the fastest growing insurance products considered by captive is group medical stop loss coverage.
AM Best said this is primarily due to rising health insurance costs in the US and organisations wanting to take control in-house via the captive.
The report also highlighted that cell facilities continue to grow as a result of being “faster and more cost-efficient” to establish.
“Interest in cell facilities continues to grow due to the flexibility the structure provides,” the report said.
“In most of these structures, captive sponsors provide platforms accessible to cell owners that seek a variety of coverages while carrying no obligation to absorb losses arising from the cells, as the operating agent of the cell platforms.”