Captive insurance industry outperforming commercial insurers: Analysis

The captive insurance industry remains stable and continues to outperform the commercial insurance industry in many key metrics, an A.M. Best Co. analyst said Tuesday.

Speaking during Best's 2013 “State of the Captive Insurance Market” webinar, Steven Chirico, assistant vice president at Oldwick, N.J.-based A.M. Best, said that while the rating agency doesn't publish a formal outlook on the alternative risk transfer market, “We do have the thought that the industry is stable and has been stable for several years.”

“By any reasonable measure, captives outperformed the commercial insurance industry” in 2013, Mr. Chirico said.

Mr. Chirico said the composite that formed the basis of Best's analysis of captives' 2012 performance included 179 alternative risk transfer entities. That group had $24.7 billion in combined surplus, $8.3 billion in premiums, $53.1 billion in assets and $1.5 billion in net income in 2012, he said.

The group's net income was down 26% from its 2011 level, Mr. Chirico said, adding “2012 was the worst year since 2008 for net income.” The group's net premium written was largely unchanged from 2011, Mr. Chirico said, and investment returns remain weak. In addition, “there was a handful of relatively large captives that experienced significant property losses in 2012,” he said.

The captive composite group had a combined ratio of 97.5% in 2012, Mr. Chirico said, up from 90.9% in 2011. The group's five-year average combined ratio of 92.3%, he said, compared with a 103.3% combined ratio posted by the commercial insurance industry over the same period.