A steady increase in captive re/insurance formations in the United States and internationally has persisted since the start of the most recent hard market in 2018, and analysts say the trend is unlikely to reverse soon.
Dan Teclaw, director at AM Best, told participants in a briefing that captives are often better positioned to understand and address client needs than outside re/insurers. He noted they allow companies to avoid overpaying in the commercial market for risks that could be managed internally.
According to AM Best report, the number of US domestic captives grew to 3,466 in 2024 from 3,365 the previous year. Captives now generate roughly one-fourth of global re/insurance market premium. The report attributed this growth to both the increasing use of captives and sustained rate hikes.
The expansion of captives is occurring against the backdrop of a US property and casualty re/insurance sector that contributes about $38 billion to national GDP and supports close to 300,000 jobs, illustrating the economic scale of the market they operate within.
As captives extend beyond large corporations into middle-market and smaller businesses, some industry professionals have raised concerns about whether all brokers are sufficiently equipped to guide clients through the formation and operation process.
AM Best data also shows that profitability in the captive sector is on the rise: in 2023, rated US captives reported US$1.4 billion in net income, up from US$923 million in 2022, and maintained a five-year average combined ratio of 86.5, outperforming the commercial casualty benchmark of 97.5.
Signs of stronger captive activity emerged in 2022, when net premiums written in the sector rose 26.9% to US$6.36 billion, according to AM Best. Single-parent captives saw NPW increase 65.7% to US$3 billion that year.
Over the past five years, AM Best-rated captives have saved owners approximately $6.64 billion that would have otherwise been paid to the commercial market, the report found. Their five-year average combined ratio is 88.0, compared with 97.0 for the commercial sector.
Historical factors behind this performance include risk management efficiency, cost control, and targeted underwriting. Vermont leads all domiciles with 683 captives, representing 16.3% of AM Best-rated entities, and maintains the highest share of the rated captive market.
While the top 10 domiciles have seen little change in rankings over the past five years, state regulators are expanding access by updating and implementing captive statutes within their re/insurance frameworks.
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