Graded Bermuda, Cayman Islands and Barbados captives continue to outperform commercial peers
A new report by ratings company AM Best has highlighted how and why rated Bermuda, Cayman Islands and Barbados (BCIB) insurance companies have continued to outperform their US commercial casualty peers.
The report, titled “Rated BCIB Captives Continue to Outperform Commercial Peers” shows that BCIB captive insurance companies continued to outperform their U.S. commercial casualty peers.
This, says AM Best, is evidenced by a combined ratio – about 13 percentage points better, over the most recent five-year period.
The report states that the current tough insurance market has so far provided “sufficient growth opportunities” for the BCIB-affiliated industries. Additionally, the BCIB captives’ operating results closely match those of US-domiciled captives and continue to outperform their peers in the commercial casualty segment.
According to AM Best, all but one of 25 AM Best-rated inmates in the BCIB composite reported positive net income in 2021. The compound’s net revenue total of US$1.3 billion in 2021 was a 4.7 percent improvement over the previous year.
Although the composite return on revenue has decreased since 2019, it is still nearly three times that of the commercial casualty composite average, the report adds.
AM Best also notes that unlike traditional property/casualty insurers, captives are not under pressure from stakeholders to generate returns on equity or income. From 2017 to 2021, the BCIB captives were able to grow the surplus by $2.3 billion, even after paying out $1.7 billion in dividends.
This equates to $4 billion in savings by using captive vehicles as an alternative for organizations using the commercial insurance market.
AM Best expects that surplus profits may be relatively small in 2022, as unrealized losses on fixed income assets – due to rising interest rates throughout the year – may fully offset operating income.
Furthermore, unrealized losses are also likely to be negatively impacted by significant declines in the market value of inmates’ equity holdings in 2022. However, as interest rates rise, inmates should benefit from higher reinvestment rates on their fixed income assets, AM Best concludes. .
Robert Gabriel, financial analyst, AM Best, says: “The BCIB captive compound’s revenue generation has been remarkably consistent and tends to be driven by its favorable underwriting results, which are well supported by the captives’ familiarity and extensive knowledge of the risks they cover.
“Yield on income, which considers a company’s net income relative to net premiums earned, shows how highly profitable the BCIB captives are.”