Captive Insurers Outperform Peers Despite 2024 Profit Decline

US captive insurers maintained strong performance in 2024, continuing to surpass their commercial market counterparts despite a 14 percent drop in net income, according to a new AM Best report. 

The Best's Special Report, "Captive and Alternative Risk Entities Continue to Emerge and Excel," found that AM Best-rated US captives recorded $1.3 billion in net income last year, down from $1.5 billion in 2023. That decline followed a 51 percent increase the previous year. The segment's 5-year average combined ratio of 88.0 compared favorably with the 97.0 ratio of commercial casualty peers. 

Underwriting volatility in recent years contributed to a 9.6 percentage point deterioration in the captive composite's combined ratio, reaching 98.5 in 2024. Even so, the segment generated substantial cost savings. From 2019 to 2024, captives added $4.6 billion to year-end surplus and returned $2.0 billion in dividends, amounting to $6.6 billion in savings compared with purchasing traditional commercial coverage. 

"There continues to be a noticeable increase in the adoption of captive insurance solutions by owners, sponsors, and managers, although the pace of formations has slowed some as the hard market has gradually abated in certain lines of business, such as D&O or cyber," said Dan Teclaw, director at AM Best. "However, overall usage of captives for new lines or coverages such as employee benefit risks or parametric contracts is still expanding, reflected by sustained year-over-year increases in premiums."

The report cites long-standing factors behind captives' outperformance, including efficient claims management, cost control, and targeted underwriting. Captives also serve as strategic extensions of enterprise risk management, focusing on loss control and capital preservation rather than profit maximization. 

"When risks appear overpriced or unavailable at the terms and conditions a company may need, captives have the flexibility to step in and customize if they have appropriate capital support," Teclaw said. "Although captives are not created with the intention of being profit centers for their organizations, they remain highly profitable, and AM Best would expect captives' results will continue to be favorable in 2025." 

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