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Member, Beacon International Group, Ltd.
While they’re facing increasing competition from commercial market companies, captive insurers generally seem well positioned to provide healthy risk financing alternatives despite the soft market, according to a report from A.M. Best Co. Inc.
Speaking on a recent webinar discussing the report’s findings, Steven Chirico, assistant vp at Oldwick, N.J.-based Best, said, “There’s definitely room to absorb some continuing price decreases while maintaining underwriting income for these captives.”
The Best study examined 195 captives the ratings agency follows. Of those, 44% are writing medical malpractice, 32% property, 19% various liability lines other than med mal and 5% workers compensation, Mr. Chirico said.
The study showed net premiums written by the group falling to approximately $8.69 billion in 2009 from $9.82 billion in 2008. “This is equivalent to what we’ve seen in the commercial markets,” Mr. Chirico said.
Net income for the group of captives Best examined increased to $1.77 billion in 2009 from $880.5 million in 2008. Year-end surplus also increased, rising 10.3% to $21.50 billion at the end of 2009 from $19.50 billion at the end of 2008.
“The commercial market also grew surplus by 10% in 2009,” Mr. Chirico said.
Much of the growth in net income is attributable to recovery of captives’ investments, according to Best.
“The good news is that captives’ investment portfolios recovered substantially all of the net asset losses of 2008,” Mr. Chirico said, adding that because captives are typically smaller companies and managed more closely than most commercial insurers, they can be more nimble in their response to investment issues.
Best also has seen some captives put into dormancy because of the current pricing environment, with plans to turn to them again when needed, Mr. Chirico said.