Best Sees Captive Share Getting Big

In the United States alone, the captive sector increased net premiums written at four times the commercial market's robust 7.2% rate. Growth is expected to continue as risk managers make better use of their existing captives, Best said.

Multi-owner captives will see steady growth in membership, as will segregated-cell companies, particularly from middle-market companies that are affected heavily by a hardened market, Best predicted.

New captives to handle pricing, coverage and capacity disruptions caused by the commercial insurance market will also fuel growth, the company found.

Best said the environment remained conducive to growth of the alternative market in the first half of 2001 through self-insurance, captives and capital-market solutions, as commercial insurance rates continued to increase and capacity continued to shrink.

The events of Sept. 11 and the resulting uncertainty created in both the reinsurance and commercial insurance markets have only accelerated the migration, as risk managers and their advisers react to a situation forced upon them, the company said.

A.M. Best publishes key financial indicators on 213 individual captives in Best's Captive Directory. The data, it said, can be used for initial peer comparisons by captive owners and service providers.

While reunderwriting and repricing in the commercial market will have a favorable impact on revenue and underwriting results in the captive market, increased risk retention, rising loss-cost trends and increasing reinsurance costs will dampen improving margins in the near term, A.M. Best found.

Despite rising leverage, the company said it believes the captive industry will remain well capitalized and well positioned for the influx of new business during 2002-2003. As captive operations expand into new risk exposures and unseasoned business, emphasis will be on the prudent use of capital, as well as risk-adjusted operating returns.