Despite the COVID-19 pandemic, captives in Cayman, Bermuda and Barbados continue to outperform US commercial casualty insurers in terms of underwriting and operating profitability, according to rating agency AM Best.
In a new market segment report, AM Best found that offshore captives rated by the agency grew net earned premiums by 11% in 2020 in spite of the pandemic.
After comparatively large fire losses in 2019, the rated captives had a more normal year in 2020, which resulted in an improved aggregate combined ratio of 85.1, down from 91.2.
The Bermuda, Cayman Islands and Barbados (BCIB) captives’ five-year combined ratio of 86.2, from 2016 to 2020, was significantly below the 100.4 posted by its US commercial casualty peers.
“The captive group’s overall capital levels are sound and support the risks underwritten, with capital continuing to grow and remaining strong even after dividend payments,” the report said.
After paying almost US$1.8 billion in dividends, the BCIB captives still added $2.5 billion to their capital and surplus, during the five-year period.
This translates into $4.3 billion in savings from the use of captive vehicles instead of commercial insurers, AM Best said.
Although captives are not under pressure from stakeholders to generate return on equity (ROE) or revenue (ROR), the group still has consistently posted near-double-digit ROE, with a five-year average of 10%.
ROR also has been very steady, averaging approximately 30% over the last five years –about three times more than the commercial lines composite average.
“The benefits and consistency of local captive management and a captive-friendly regulatory environment have enabled Bermuda, the Cayman Islands and Barbados to not just maintain, but even expand, their foothold in the captive market,” said John Andre, AM Best managing director, in a press release.
Cayman Captive Forum under way
The release of the report coincides with the Cayman Captive Forum, that is being held virtually from 30 Nov. to 2 Dec.
The forum is typically the largest gathering of captive insurance managers and Cayman’s largest industry conference. However, for the past two years the COVID pandemic meant that the event had to be hosted online.
In a welcome message to delegates, Colin Robinson, the chairman of the Insurance Managers Association of Cayman, said although Cayman’s borders had been closed for almost two years, Cayman had seen strong captive formations with more than 30 last year and close to 40 this year.
There are currently 662 Class B, C and D insurance licensees in Cayman, up from 552 last year.
Related Videos
