Captives
Top Performers
AM Best’s Molineux says rated captives in Cayman, Bermuda and Barbados outpace the U.S. commercial market.
AM Best-rated captives domiciled in Cayman, Bermuda and Barbados consistently post operating and combined ratios 20 points lower than the U.S. commercial insurance market, said Susan Molineux, director, AM Best.
Molineux discussed the Best's Market Segment Report, Rated Bermuda, Cayman Island and Barbados Captives Steadily Navigate Market Cycles, with AMBestTV.
Following is an edited transcript of the interview.
What did AM Best analysis of these captives' performance show?
The headline of our report states the remarkable consistent performance of the market. We often will compare the captive market to the U.S. commercial casualty sector.
In both our U.S. captive report that was issued earlier last year and also the Bermuda, Cayman Islands, and Barbados report, shows the captive market continues to outperform the U.S. commercial casualty market.
When we look at balance sheet strength, 90% of this market is considered either very strong or strongest.
Susan Molineux
AM Best
Can you tell us about the underwriting performance?
We put some statistics in our report, and were also looking at it on a five-year average basis. We do note that both on an operating ratio and a combined ratio basis that the ratios of the captive sector are outperforming the commercial market by 20 points.
If you were to view that remaining analysis through AM Best building blocks, how would that break down?
Our building blocks are based on balance sheet strength, operating performance, business profile, and enterprise risk management. When we look at balance sheet strength, 90% of this market is considered either very strong or strongest. We talked about operating performance before and that was 40% where we would consider them strong.
Business profile is 70% neutral. I'd like to explain that a little bit, because most of our captives are either considered neutral business profile or limited business profile. There are a lot of single purpose captives.
By saying that, I mean that they are in place to write a very limited line of business or they are in place for a specific purpose or writing in a very narrow region of the country or the world. Those are considered limited.
However, when we're looking at captives and, in this case, calling 70% of them neutral, some of our market is group captives and also some very big single-parent captives, where they are writing multiple lines of business, multiple domiciles throughout the world.
For that reason, we do have 70% of them considered neutral, and also last but not least, ERM, 90% approximately are considered appropriate, and I think that lends itself to the integration with the parent or the sponsor's risk management programs.
When you look at the single-parent captive, they have the benefit of the parent and intimate knowledge with their risks, but then also on the group captive side, you have a lot of different sponsors and you get to benefit over multiple organizations, ERM programs. You kind of get the best of the best in those organizations.
What are you seeing in terms of emerging risks?
In our report we focus in two areas. One is self-funded employee health insurance programs, which is really covered through captives through medical stop loss and also cyber. When we're looking at medical stop loss, it's really speaking to the spiraling costs of health care and that captives have opted to take on some of the risks, the employee benefit risks, through medical stop loss.
Also, when you are looking at cyber, the headlines continue to come out that cyberbreaches are happening every day. There's probably some people attempting them as we speak now. Captives are taking not a material slice of it, but they are taking a piece of the risks through the captives.
