market, according to a leading captive publication.

The May issue of Captive Insurance Company Reports sates that buyers of insurance may choose to pay higher prices for the product rather than set up a captive.

And the hardening of insurance prices is unlikely to have a positive effect on cash flows for captives around the world, the trade publication states.

The magazine's prediction, if correct, will impact on Bermuda, which has 31.5 percent of the world market in captive insurance companies, according to Best's Captive Directory 2001.

Captive Insurance Company Reports said: "As insurers increase premiums, most of which they retain, their overall piece of the total premium will grow. We doubt captive business will take a large share of that increase since new entrants usually start small, and because existing captives are not likely to increase their own rates at the same rate as the commercial market.

"In today's market capacity is generally not a problem for insurance buyers - prices are - so they may choose to pay higher premiums rather than make new investments in captives.'' The A.M. Best data, published last month, shows steady growth rates for captive insurance companies, between 4.5 percent and 5.5 percent over the past several years, with an acceleration in growth in 2000 and lists Bermuda as the top captive domicile.

The magazine, in a publication dedicated to analysing the data, said: "The middle market has traditionally stayed away from captive ownership, although some have had rent-a-captive accounts for years. Best's cited that, on average, rate increases were under double digits last year. We wonder if a 10 percent or more rate increase will whet their appetite for captives or cells.

"Despite the growth in segregated cell captives, rent-a-captives still outnumber segregated cells. Best's counts 82 rent-a-captives and 57 segregated cell captives. Its possible that thousands are using rent-a-captives while the segregated cell captives are just heating up.'' Captive growth predicted to slow But the magazine cautions that segregated cells are not tax tested, given their relative newness, especially for American users, adding: "An unfavourable ruling could cloud the use of these vehicles.'' Best's statistics show that Bermuda not only has the largest percentage of the world's captives, but also got the highest number of new captive formations in 2000. 51 new captives formed here last year, which is three ahead of Cayman and nine ahead of British Virgin Islands.

During the year 245 new captives were formed worldwide and the directory records the worldwide total of all captives at 4,458. 170 captives were shut down in 2000, leaving a net gain for the year of 75.

Second, after Bermuda, is Cayman with 12 percent of the world market, followed by Vermont with 8.5 percent, then Guernsey with 8.3 percent. Guernsey leads on the European side of the Atlantic, followed by Luxembourg with 6.1 percent, Ireland with 4.0 percent and the Isle of Man with 3.9 percent.

Ireland has 178 captives. It entered the market several years after neighbouring Isle of Man, which is listed as having 173.