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U.S. Captive Insurance - 2008 Market Review
Report Highlights

The report states that U.S. captive insurers’ net income declined approximately 66% in 2008 for a composite of 186 captive companies represented in the report. This reflects realized losses of $1.2 billion for the year, a large percentage of which resulted from one company’s investment losses. Net underwriting income actually increased over the prior year – evidence of the captive industry’s typical underwriting discipline and its inclination not to rely on investment income.

The report also discusses:

• Captives had no material exposure to commercial mortgage-backed securities (CMBS) or mortgage-backed securities (MBS) and minimal exposure to Lehman Brothers or Bear Stearns paper.
  
  
• Overall, captives generated gross investment income of $1.8 billion in 2008, down only 7% from 2007.
  
  
• Policyholder dividends decreased by 1.6 percentage points to 4.2% in 2008 from a high of 5.8% in 2007, allowing captive companies to return some profits to surplus while remaining attentive to policyholders’ needs.
  
  
• Captives posted deteriorated results in 2008 as a softening market followed particularly good results in recent years.
  
  
• Maintaining steady rates in the hard market has served captives well as the market has softened and captives refrain from chasing rate.
  
  
• Captive management teams are increasing their emphasis on enterprise risk management, and successful single-parent captives have integrated their operations as part of the parent company’s overall risk management program.
  
  
• Captive formations continue amid a softening commercial insurance market, but new captive domiciles are finding it challenging to establish a presence.
  
  
• The outlook for the captive industry is stable as participants exercise their financial flexibility in a softening market.
  

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