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Captive insurers' operating income grew in 2015

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U.S. captive insurers rated by A.M. Best Co. saw their pretax operating income climb last year, though net written premiums stayed flat, the rating organization said in a report released Tuesday.

In 2015, the 134 U.S.-based captives rated by Best and analyzed in the report, racked up $1.40 billion in pretax operating income, up from $1.28 billion in 2014, while net written premiums, due to a rise in business they ceded, slipped to $4.87 billion from $4.89 billion.

“In general, the market position of captive insurers continues to be profitable, well-capitalized and consistent,” Best said in a news release accompanying the report. “These attributes are the result of effective risk management practices, steadfast strategic analysis and each captive insurer's in-depth knowledge of underlying risks,” the Oldwick, New Jersey-based rating agency said.

Risk retention groups

In addition, Best found steady growth in business written by risk retention groups, which are multi-owner captives and can write, under legislation Congress passed in 1981 and 1986, commercial casualty coverages, except workers compensation, after meeting the licensing requirements of one state — for policyholders in any state.

Last year, the 41 RRGs analyzed in the report generated $850.71 million in net written premiums, up from $834.77 million in 2014 and $602.59 million in 2013.

While RRG backers have lobbied Congress in recent years to expand the law to allow RRGs to insure member-owners' workers compensation and property risks, “nothing tangible has occurred so far,” the report noted.

The last legislative expansion occurred in 1986 — a time of soaring rates in the traditional commercial market — when Congress gave RRGs the authority to write all casualty coverages, except workers compensation. Under the original 1981 law, which authorized risk retention groups, RRGs were limited to writing product liability and completed operations coverages for policyholders.

Just a handful of RRGs were set up under the 1981 law. Currently, according to the Risk Retention Reporter, a monthly newsletter, 235 RRGs are operating.