News Column

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

August 11, 2014



OLDWICK, N.J.--(BUSINESS WIRE)-- 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. Captivesí 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 agentsí 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 compositeís average of 103.2. The captivesí 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 captivesí 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, workersí 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 http://www3.ambest.com/bestweek/purchase.asp?record_code=227616.

This report originally appeared in Bestís Journal, Aug. 4, 2014 edition. Bestís Journal is a biweekly publication that presents A.M. Bestís original research, analysis and commentary on the global insurance industry and is available exclusively as part of a subscription to the Bestís Insurance News & Analysis service. More information about the Bestís Insurance News & Analysis subscription service is available at www.ambest.com/sales/bina/default.asp.

OnAug. 12-14, at the Vermont Captive Insurance Associationís 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 www.ambest.tv.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.




A.M. Best

Fred Eslami, 908-439-2200, ext. 5406

Senior Financial Analyst

fred.eslami@ambest.com

or

Steven Chirico, CPA, 908-439-2200, ext. 5087

Assistant Vice President

steven.chirico@ambest.com

or

Christopher Sharkey, 908-439-2200, ext. 5159

Manager, Public Relations

christopher.sharkey@ambest.com

or

Jim Peavy, 908-439-2200, ext. 5644

Assistant Vice President, Public Relations

james.peavy@ambest.com


Source: A.M. Best Company, Inc.


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