AM Best’s latest analysis underscores that U.S. captive insurance companies continue to outperform their commercial market counterparts, maintaining their edge through disciplined underwriting, effective risk management, and tight operational control—even as net income dropped 14% in 2024 to $1.3 billion (following a 51% surge in 2023). The five-year average combined ratio for AM Best-rated captives is 88%, easily surpassing the commercial casualty peer average of 97%.
Key Performance Drivers:
Claims and Risk Management Proficiency: Captives excel in aligning loss prevention with organizational goals, actively reducing claim frequency and severity.
Rigorous Cost Control: Lean operational models and direct oversight ensure minimal leakage and administrative savings, maximizing premium retention for insureds.
Targeted, Disciplined Underwriting: Captive portfolios respond with agility to emerging risks and market needs by focusing on strategic risk selection, often outperforming traditional insurers who face pressure to chase profit and premium volume.
Enterprise Risk Integration: As embedded components of their parents’ risk management strategy, captives prioritize capital preservation and custom coverage—serving owners’ interests rather than external shareholders.
Market & Growth Context:
The broader captive insurance sector continues to grow, outpacing the commercial market, even as the hard market conditions that fueled an influx of new captives in lines such as D&O and cyber are gradually abating. Premiums written by captives keep increasing, especially as companies utilize them for new lines of business (e.g., employee benefits and parametric solutions) and as alternative risk transfer becomes a strategic necessity in a volatile global risk environment.
According to industry surveys:
The global captive market reached a record-high number of licensed captives in 2023, with continued steady growth anticipated in 2024 and beyond.
Captive formations have diversified, with more mid-market and non-traditional sectors (e.g., tech, healthcare) adopting captive solutions.
Rising costs and capacity limits in the commercial market—particularly for emerging risks—have pushed sophisticated buyers to leverage captives for greater coverage flexibility, financial efficiency, and loss control.
For innovative organizations seeking to maximize control and premium retention, captive insurance solutions consistently deliver superior financial results. As AM Best’s director, Dan Teclaw, highlights, captives remain robustly profitable despite not being established purely as profit centers. Their ability to offer bespoke coverage, stabilize pricing, and respond to gaps in the standard market ensures their enduring appeal for high-performing enterprises worldwide.
While the pace of new captive formations may modestly slow as some market conditions normalize, overall utilization and premium growth remain robust. Captives are uniquely positioned as strategic risk management vehicles—delivering cost-efficiency, risk mitigation, and tailored solutions—helping business leaders seize control in the dynamic risk landscape of 2025 and beyond.
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