U.S. captive insurers' net income doubled in 2009, according to a recent report by A.M. Best Co. Inc.
Captives reported net income of $1.76 billion last year, up from $880.4 million in 2008, according to Best's review of 195 insurers.
The report attributed the gain to realized capital gains, which climbed to $82 million in 2009 after a loss of $1.2 billion the year before.
Meanwhile, net underwriting income fell to $654.6 million in 2009 from $769.3 million in 2008.
The report noted that although underwriting income fell in 2009, captive insurers continued to focus on providing coverage and stable pricing, rather than on producing large underwriting profits.
According to the report, "The overall increase in net income allowed the captives to initiate some decreases in rates to better compete in a soft market." It added that captive insurers are able to compete on price and on customized policies and services for their policyholders, which benefits them in a soft market.
Finally, captives are able to offer premium credits or dividends to help offset the overall cost or effective rate of the policy, and can maintain stable rates during the hard market phase of underwriting, the report said.