Bermuda captives outperforming commercial insurers
Despite the Covid-19 pandemic, Bermuda, Cayman Islands and Barbados captives continue to outperform the United States commercial casualty composite on underwriting and operating profitability, according to a new AM Best report.
The Best market report states that despite the addition of new risks from the hardening commercial lines market and accompanying economic growth, BCIB captives saw steady net earned premium growth of 11 per cent last year.
After a relatively high number of large fire losses two years ago, the group had a more normal year in 2020, reflected in an aggregate combined ratio that improved to 85.1 per cent from 91.2 per cent.
The BCIB group’s five-year (2016-2020) combined ratio of 86.2 per cent also was significantly below the 100.4 per cent posted by its US commercial casualty peers.
The report said that 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.
From 2016 to 2020, even after paying almost $1.8 billion in dividends, the BCIB captives added $2.5 billion to their capital and surplus, which translates into $4.3 billion in savings from the use of captive vehicles instead of commercial insurers.
Although captives are not under pressure from stakeholders to generate return on equity or revenue, the group still has consistently posted near double-digit ROE, with a five-year average of 10 per cent.
ROR was also very steady, averaging approximately 30 per cent over the past five years — about three times that of 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,” AM Best managing director John André said.
The report is similar to last year’s, which also stated that BCIB was outperforming peers. In that report, BCIB captive composite reported a pretax income of approximately $1.4 billion, a 46 per cent increase over the previous year.