AM Best: Rated Captives Continue to Outperform Commercial Peers

AM Best's new Best's Market Segment Report, "Rated Captives Continue to Demonstrate Financial Stability in an Evolving Risk Landscape," finds that rated US captive insurance companies continued to outperform their commercial market counterparts while providing significant financial benefits to their parent organizations. According to the report, AM Best-rated captives generated an estimated $8.2 billion in savings between 2021 and 2025 through surplus growth and policyholder dividends that otherwise would have been paid to the commercial insurance market.

The report notes that captive insurance companies continue to experience sustained growth despite improving capacity in portions of the traditional commercial insurance market. According to AM Best, new captive formations and the expansion of existing captives into additional lines of coverage reinforce the view that captives are increasingly being used as long-term strategic risk-financing mechanisms rather than solely as responses to hard insurance markets.

AM Best reports that it currently rates more than 220 captive insurance companies globally. Approximately 70 percent of those rated captives are domiciled in the United States, 17 percent are located in the Caribbean, and the remaining 13 percent are domiciled elsewhere. The rated population includes single-parent captives, group captives, risk retention groups, and cell companies. Per the report, organizations are increasingly viewing captives as essential tools for risk management, resilience, and innovation, with formation decisions driven by long-term strategic objectives.

The report also highlights continued growth among major US captive domiciles during 2025. According to AM Best, Vermont added 51 new captive insurance companies and 36 new cell captives, bringing its active captive total to 707. Utah reported 605 captive entities, including cell captives, while Delaware added 21 new captives and North Carolina reported 21 new captive formations, excluding cells and series, for a total of 263 captives.

From a financial perspective, AM Best found that rated captives continued to outperform commercial casualty insurers despite experiencing some operating pressure over the past 2 years. Per the report, the 5-year average combined ratio before dividends for the captive insurance composite was 89.1, compared with 96.7 for the commercial casualty composite, while the operating ratio averaged 78.1 versus 84.8 for commercial insurers. The report attributes this performance to disciplined underwriting, effective risk management, and strong loss control practices.

Premium volume also continued to grow. According to AM Best, net premiums written by rated captives increased 7 percent at year-end 2025, marking a 65.5 percent increase over the 5-year period. The report indicates that premium growth generally reflects expanded use of captives to assume additional exposures and new lines of coverage rather than increases in premium rates.

While underwriting performance remained favorable overall, the report notes that higher loss activity in workers compensation and fire lines contributed to increased loss and loss adjustment expense ratios over the past 2 years. According to AM Best, however, rated captives continued to outperform commercial market benchmarks due in part to substantially lower underwriting expenses and continued policyholder dividend payments that exceeded $2.5 billion during the past 5 years.

The report also examines investment performance, noting that captives generally maintain conservative investment strategies focused on capital preservation. Per AM Best, although this approach results in lower investment yields than those reported by commercial insurers, rated captives have continued to produce solid net investment income, favorable cash flows, and stronger operating ratios over the 5-year period.

Looking ahead, AM Best says captive insurers are expected to continue expanding into areas including employee benefits, cyber, and parametric coverage as organizations address evolving risks. At the same time, the report notes that captive owners must manage challenges including capitalization requirements, regulatory compliance, underwriting volatility, and reliance on third-party service providers as they incorporate captives into long-term enterprise risk management strategies.

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