NU Online News Service, Aug. 3, 2:09 p.m.EDT

Captives are “starting to feel the squeeze” of marketconditions, low-investment yields, and issues in theglobal-financial markets, according to A.M. Best, which reportsthat a composite of 209 captives it follows reported a decline innet income for 2011.

A.M. Best says the group of captives saw net income fallto a combined $2.01 billion, down 21 percent compared to 2010. Theratings agency blames decreases in underwriting income, netinvestment income and realized capital gains.

A.M. Best says underwriting income decreased because ofincreases in loss and loss adjustment expenses, driven by a decayin losses in the medical professional liability insurance line ofbusiness.

Net investment income decreased because of a 30-basis-pointdecrease in yield on fixed-income securities, the report states,while net-realized-capital gains decreased because of the levelingoff of the stock market and “steady, albeit very low, interestrates.”

The ratings agency adds that captive management teams are sayingthey expect realized capital gains to continue to decrease over thenext few years unless there is significant government involvementin the financial markets.

Net premiums written increased in 2011 to $8.35 billion,compared to $7.66 billion in 2010. A.M. Best says that captives itinterviewed for its analysis indicated that the exposure baseincreased not from an increase in insureds or their payrolls, butrather from “a drive toward the most efficient use of existingcaptives by taking on more risk retention and purchasing lessreinsurance, and/or taking lines of coverage into their captivesthat previously had been placed in the commercial market.”