Captive insurers are outperforming their commercial counterparts on every key financial measure, according to rating agency AM Best.

Captives provide self-insurance for their corporation owners and some write third-party business as well.

Best said that over the past five years the average combined ratio — the proportion of premium dollars spent on claims and expenses — of its US captive composite was a very profitable 85.2 percent, as opposed to the unprofitable 103.2 percent average of Best’s commercial casualty composite.

The captive companies analysed by Best for the report were taken from a subset of more than 200 captive companies, all of which currently are rated. Those companies range in size from $2 million in surplus to more than $3.5 billion. These captive companies write (in size order) medical malpractice, inland marine, general and automobile liability, property, workers’ compensation and other lines.

Best added: “It is well known, given that the majority of single-parent captives use loan-back instruments with their parents, that captives’ investment portfolios tend to be significantly more conservative, and therefore generate less income, than typical investment portfolios for commercial companies.”

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