OLDWICK, NJ, August 4, 2022—(BUSINESS WIRE)–The U.S. captive insurance market segment continued to generate profits and excess profits in 2021, outperforming its commercial market rivals, according to a new AM Best a message.
The Best’s Special Report, “U.S. Consumer Insurance: Stepping Amid Capacity and Pricing Challenges,” reports that top-rated U.S. AM companies reported another strong year with pretax operating income of $1.0 billion, down slightly from 1, $1 billion reported in 2021. The five-year average combined ratio of 84.5 posted by top-rated US captives far exceeded their 99.4 commercial casualty composition. These U.S. captives saw their combined ratio improve 1.8 percentage points year over year to 85.4 in 2021. In total, between 2017 and 2021, they added $4.3 billion to their year-end surplus, while returning dividends to shareholders and policyholders of 5.8 billion, representing $10.1 billion in insurance cost savings that captives retained for their own organizations by not purchasing coverage from third parties in the commercial market.
“The inherent flexibility and control in managing risk in the self-consumption segment drives profitability and sustains profits while creating value for its policyholders and shareholders regardless of market conditions,” said Dan Teclaw, Associate Director of AM Best.
Return on investment remains a challenge for US rated captive insurers. In 2021, net investment income increased slightly, which combined with higher capital gains increased investment income to 4.1% from 3.9%.
Net investment income remains a strong contributor to operating profits despite weak returns from growing investment portfolios.
According to the report, the number of captives in the US continues to grow, although growth in captive formations has been moderated by the onset of economic uncertainty due to the pandemic, as well as continued oversight by the IRS and greater regulatory and reporting requirements. However, these conditions have prompted policyholders to explore alternative and flexible solutions that captives can provide.
“Difficult business conditions in the market highlight the benefits of the self-consumption segment and provide an incentive for companies to establish them,” said Fred Eslami, associate director of AM Best. “In tough markets, some non-insurance companies may feel that the commercial market does not understand or overestimate their view of their own risks, so they investigate captive formation. This current environment allows underwriters to tailor coverage for risks that may be unusual or difficult to implement.” write or place on the standard market.”
To access a full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=322542.
AM Best remains the leading ARR rating agency with more than 200 such vehicles rated in the United States and around the world. Best’s current credit ratings and independent market data for personal insurance and alternative risk transfer can be found at www.ambest.com/captive.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company operates in more than 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information visit www.ambest.com.
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