Captive insurance growth around the world was relatively flat in 2002, in spite of a record number if new company formations, according to a new study by the AM Best ratings agency.

Best said in "Sizing Up the Captive Market: Growth in the Number of Active Captives Remained Flat in 2002" that 462 new captive insurance companies were licensed in 2002, but active companies increased by just five to 4,526 at year-end 2002 from 4,521 at the end of 2001 after captive liquidations were taken into account.

"A.M. Best Co is not surprised by the surge in new captive formations," the agency said. "The hard insurance market experienced as early as 2000 has driven many insurance buyers to alternative strategies as coverage and capacity have become scarce.

"This is especially true for certain industries and business lines, such as health care and medical-malpractice insurance. Hence, Cayman's 97 new formations, capturing 21.3 percent of all new captives formed in 2002, is to be expected given its reputation for health-care captives."

AM Best said Bermuda had the second highest number of new formations with 17.1 percent of the total. Vermont had 15.2 percent, Guernsey had 10.6 percent and the British Virgin Islands had 9.7 percent.

AM Best said new captive owners continued to rely on established domiciles to solve their insurance needs quickly. And it said risk managers were consolidating risk-management programmes, "since supporting numerous captives in multiple domiciles was deemed neither effective nor efficient for their companies".

The study noted that captives writing medical-malpractice coverage were hurt by the rapidly escalating loss costs and the rising claim frequency and severity that forced commercial insurance carriers to abandon the business line in 2002 and some have already put themselves in run-off and then liquidation.

The study also said that captives were facing increasing difficulties securing "fronting", and that meant that the number of active captives would remain relatively flat.

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On the Net: BestWeek subscribers can download a free printed copy of the full 8-page special report, "Sizing Up the Captive Market: Growth in the Number of Active Captives Remained Flat in 2002," or a combination of the printed study plus a spreadsheet file of the study data for $25 from our Website, www.bestweek.com.

Nonsubscribers can download a printed copy of the full eight-page statistical study for $25 or a combination of the printed study plus a spreadsheet file of the study data for $50 from Best's Website, www.bestweek.com. Call customer service for more information, (908) 439-2200, ext. 5742.