AM Best Information Services

AUGUST 11, 2014 10:11 AM (EDT)

A.M. Best Special Report: Rated U.S. Captives' Results Still Outperform Commercial Insurers

Fred Eslami
Senior Financial Analyst
(908) 439-2200, ext. 5406

Steven Chirico, CPA
Assistant Vice President
(908) 439-2200, ext. 5087

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


OLDWICK - AUGUST 11, 2014 10:11 AM (EDT)
U.S. captive insurers rated by A.M. Best continue to outperform the commercial sector in every key financial measure. Of note in 2013 was a 12.4-point improvement in the loss and loss-adjustment expense ratio over the prior year, mainly due to the lack of any major, outsize property losses. The 2012 results were driven largely by Superstorm Sandy.

Underwriting expenses improved to a five-year low in 2013. Captives' expenses are normally lower than conventional insurance markets, mainly because they have lower overhead and associated expenses, and most if not all of them do not rely heavily on items such as agents' commissions.

Over the longer term, the five-year average combined ratio for the captive composite of 85.2 continues to compare extremely favorably with the commercial composite's average of 103.2. The captives' operating ratio over the same five-year period is tighter, with the captives generating a five-year operating ratio of 69.7 versus 88.3 for the commercial composite. It is well known, given that the majority of single-parent captives use loan-back instruments with their parents, that captives' investment portfolios tend to be significantly more conservative, and therefore generate less income, than typical investment portfolios for commercial companies.

The captive companies analyzed by A.M. Best for this report were taken from a subset of more than 200 captive companies, all of which currently are rated. Those companies range in size from $2 million in surplus to more than $3.5 billion. These captive companies write (in size order) medical malpractice, inland marine, general and automobile liability, property, workers' compensation and other lines. A.M. Best has used the commercial casualty composite for comparative purposes throughout the report.

To access a copy of this special report, please visit .

This report originally appeared in Best's Journal, Aug. 4, 2014 edition. Best's Journal is a biweekly publication that presents A.M. Best's original research, analysis and commentary on the global insurance industry and is available exclusively as part of a subscription to the Best's Insurance News & Analysis service. More information about the Best's Insurance News & Analysis subscription service is available at .

On Aug. 12-14, at the Vermont Captive Insurance Association's 29th Annual Conference in Burlington, VT, A.M. Best will join panelists, exhibitors, captive owners and other insurance professionals. A.M.BestTV will be providing wrap-up programs and interviews through a complimentary video news service available at .

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.