U.S. Captive Reinsurance Growth Advances Amid Market Rate Hikes

The U.S. captive reinsurance sector has shown consistent growth since the onset of the hard market in 2018, with the number of domestic captives rising to 3,466 in 2024 from 3,365 in 2023. Captives, which allow companies to manage risks internally and avoid overpaying in commercial markets, now contribute roughly a quarter of global reinsurance premiums. This trend is supported by ongoing rate increases and expanded adoption among middle-market and smaller businesses, indicating deeper market penetration beyond large corporations.

The economic significance of captives is underscored by the broader U.S. property and casualty reinsurance market, which adds about $38 billion to the national GDP and supports nearly 300,000 jobs. Increased profitability in the captive sector is notable, with net income reaching $1.4 billion in 2023, up from $923 million in 2022, and a five-year combined ratio averaging 86.5, outperforming the commercial casualty benchmark ratio of 97.5.

Net premiums written indicated robust growth, with a 26.9% rise to $6.36 billion in 2022, and single-parent captives experiencing a 65.7% increase to $3 billion. The captive model has led to significant cost savings, estimated at $6.64 billion over five years compared to commercial insurance, driven by effective risk management, underwriting, and cost control.

Vermont remains the leading captive domicile, housing 683 captives or 16.3% of AM Best-rated entities. While there has been minimal change in the top domiciles over recent years, state regulators are actively updating and implementing statutes to broaden captive availability within the prevailing regulatory frameworks.

Industry concerns include whether brokers servicing middle-market and smaller companies have adequate expertise to navigate captive formations and operations. The trend toward captive expansion presents evolving regulatory and market considerations tied to the optimization of risk management strategies.

Overall, the captive reinsurance sector’s growth and superior financial metrics highlight its expanding role as a strategic risk management tool in the U.S. market, complementing traditional commercial reinsurance channels and contributing to market diversification and resilience.