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Best Special Report: Rated Bermuda and Cayman Captives Sustain Strong Operating Results
[September 08, 2017]

Best Special Report: Rated Bermuda and Cayman Captives Sustain Strong Operating Results

Captive insurers domiciled in Bermuda and the Cayman Islands (Cayman) that are rated by A.M. Best again posted financial results that were profitable and in line with historical averages in 2016. Premium leverage ratios improved, as capital grew at a healthy rate of 8%, buoyed by strong operating earnings.

The Best's Special Report, titled, "The Beat Goes On: Rated Bermuda & Cayman Captives Continue Their Strong Operating Performance," states that 2016 marked the fifth year of above-par operating results, measured by a total return on revenue of 23%, down from 24% in 2015. Underwriting results declined somewhat, to a combined ratio of 85.3 in 2016 from 80.0 the year before, but were well above the results posted by A.M. Best's composite of U.S. commercial casualty insurers. In addition, the Bermuda and Cayman five-year (2012-2016) average combined ratio of 82.5 far exceeded the U.S. commercial casualty segment by more than 16 points.

The Bermuda and Cayman captives saw their net premiums earned decrease for the first time in five years, to a modest 4.7% compared with a high single-digit growth that averaged 7% in the prior four years. This included a 10.1% growth in 2014, which was far greater than the premium growth reported by U.S. commercial casualty insurers over the same period.

Unlike traditional property/casualty insurers, captives are not pressured by stakeholders for returns on equity (ROE) or revenue growth. Extensive use of reinsurance allows these companies to transfer a significant amount of catastrophe risk, resultingin less volatile results compared with traditional insurers. Bermuda and Cayman captives have posted strong, double-digit ROEs despite difficult market conditions and challenges, with a five-year compound average growth rate of 13% for operating ROEs. Favorable reserve releases and limited catastrophe events are the two key contributors to their solid margins and strong ROEs.

In A.M. Best's view, the overall prognosis for captive insurers is a healthy one. This view is based on the success of the captive business model, the efficiencies gained from the use of alternative risk transfer and the benefits of increased risk awareness and loss control, as well as the ability to integrate sound risk management practices throughout the organization, all of which lead to operating results that outperform the commercial market.

To access a copy of this special report, please visit

A.M. Best's annual Bermuda Captive Conference runs Sept. 11-13. For more information about the conference, visit

A video interview with A.M. Best Director Gary Davis, a speaker at the conference, can be viewed at

A.M. Best is the world's oldest and most authoritative insurance rating and information source. For more information, visit

Copyright © 2017 by A.M. Best Rating Services, Inc. and/or its subsidiaries. ALL RIGHTS RESERVED.

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