A Look At Captives

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Posted on 12 Apr 01

The following is an edited version of a news release byA.M. Best Company:

A.M. Best Company reports that the market for captiveswill continue to grow in 2001. This is due primarily to the hardening market incommercial lines and in spite of pressures from a deteriorating stock market andregulatory authorities.

In A.M. Best Co.'s 2001 edition of its annual Best'sCaptive Directory, A.M. Best analysts say that price firming trends--especiallyin the middle market--have not yet triggered a widespread migration of insuredsto self-insure through alternative markets, though "sustained priceincreases will only increase the likelihood that sophisticated insurance buyerswill more seriously consider an alternative market solution over themid-term." Best's Captive Directory lists all captive insurance companiesthroughout the world, with information taken from a variety of sources. Thereare 4,458 captives in the 2001 directory, a net increase of 2.4% over last year.

A.M. Best data shows steady growth rates for captiveinsurance companies--between 4.5% and 5.5% over the past several years--with anacceleration in growth in 2000. By year-end 1999, the alternative insurancemarket comprised nearly 40% of the total commercial market in the United States,and A.M. Best believes that market share will approach 50% in 2003.

In Vermont, the largest captive market in the UnitedStates, regulators are seeing steady growth and a back-to-the-basics approachamong new captives concentrating in workers' compensation, general liability andauto liability.

A.M. Best analysts say hot issues and emerging trendsin the worldwide captive market also include:

1. the acceleration of captive growth in Europe and Asia
2. Tax issues will make offshore captives more transparent, as the managers of offshore captives work to fend off pressure from governments to level the tax playing field.
3. Health-care captives are moving toward insuring medical malpractice for on-staff physicians as the insurance market tightens for coverage on individual doctors.

More companies in the United States will divert theirlife and health benefits into alternative market vehicles such as captives, inthe wake of a U.S. Department of Labor ruling allowing Columbia Energy Corp. toinsure employee benefits in their captive (Columbia Insurance Corp. Ltd.,domiciled in both Vermont and Bermuda).