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U.S. captive insurers strained by pressures of soft market

A.M. Best report describes pressures faced in 2011


The performance of U.S. captive insurance companies in 2011 reflected pressure from traditional insurance market competition, as well as the effect of global events, an A.M. Best Co. Inc. analyst said last week.

Speaking during a webinar previewing findings from Best's upcoming State of the Captive Insurance Market 2012 report, Steven Chirico, assistant vp at Oldwick, N.J.-based A.M. Best, said the 209 U.S.-based captives that Best rates had $8.5 billion in net premiums in 2011, and finished the year with $50 billion in net assets, a $22.7 billion surplus and $2 billion in net income.

The Best-rated captives had a combined ratio of 92.9% in 2011.

Net income for that group of captives fell 27% in 2011 from 2010, and net underwriting income fell 32%, Mr. Chirico said.

Net premiums, however, were up $691 million, or nearly 9%, in 2011 compared with 2010.

Mr. Chirico attributed the rated group's drop in underwriting income particularly to medical professional liability, though most other lines of business performed better in that statistic in 2011 than in 2010.

Competition in the medical professional liability market has led to a flattening of premiums, he said.

“The other lines of business written by other types of organizations tended to have good years in 2011, not necessarily compared to 2010, but compared to the five-year average,” Mr. Chirico said.

Fred Eslami, senior financial analyst in the alternative risk transfer group at A.M. Best, said that the company maintains a stable outlook for single-parent captives' ratings.

“In our opinion, single parents maintain a relatively stable rating due to their parents' commitment to the captives' mission,” Mr. Eslami said.