Best Market Sector Report: US Captive Insurance Amidst Capacity and Pricing Challenges

Oldwick, NJ – (work wire) – The US captive insurance market segment continued to post profits and surplus gains in 2021 while outperforming its commercial market peers, according to a new report. better morning Report.

The Beast Special ReportUS Captive Insurance: Moving Amid Capacity and Pricing Challenges states that AM-rated US captives had another strong year, with pretax operating income of $1.0 billion, down slightly from the $1.1 billion reported. than in 2021. In addition, the five-year aggregated average of 84.5 posted by AM-rated American POWs significantly exceeded 99.4 from a similar set of business losses. On an annual basis, these US POWs registered a 1.8 percentage point improvement over their combined ratio to 85.4 in 2021. Overall, between 2017 and 2021, they added $4.3 billion to their year-end surplus while returning $5.8 billion in dividends to shareholders and policyholders. The $10.1 billion in insurance cost savings captives kept for their organizations by not buying coverage from third parties in the commercial marketplace.

“The flexibility and control inherent in the captive segment of risk management drive profitability and retain profits while creating value for policyholders and shareholders, regardless of market conditions,” said Dan Teclau, associate director at AM Best.

Investment returns remain a challenge for US rated captive insurers. In 2021, net investment returns increased slightly, which when combined with higher capital gains increased investment returns to 4.1% from 3.9%.

Net investment income remains a strong contributor to operating profit despite weak returns from growing investment portfolios.

According to the report, the number of US captives continues to rise, although the growth of captive formations has mitigated the emergence of economic uncertainty caused by the pandemic, as well as ongoing scrutiny from the IRS and increased regulatory and reporting requirements. However, these conditions prompted the insured to explore alternative and flexible solutions that the captives could provide.

“The challenging commercial market conditions highlight the advantages of the captive sector and provide companies with an incentive to set up,” said Farid Islami, associate director at AM Best. “In challenging 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 POWs. This current POW environment allows coverage to be customized for risks that may be uncommon or difficult to write. or put it on the standard market.”

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