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BestWeek: Rated Captives Profits Rise on Underwriting

The outlook for the captive industry remains stable. While the outlook on captives' standard commercial carrier peers is negative; rated captives have distinct advantages. Pure captive companies can withstand a softening market because of their financial flexibility, which results from their relationships with their parent companies, leaving them well positioned for the inevitable turn in the market, according to the report

Also exclusively in BestWeek U.S. Canada, the life insurance industry praised Congress' last-minute vote to raise the federal debt ceiling, but it still faces the threat from lawmakers who may seek to tax the deferred cash build-up on some life insurance policies.

A.M. Best believed that the impact of a downgrade to the U.S. sovereign rating of one to three notches would not substantially affect the risk-adjusted capitalization of the life industry, said Andrew Edelsberg, vice president at A.M. Best. However, A.M. Best expressed concern about the "contagion-type effects" of such a downgrade or even worse-U.S. debt default—on an already weak economy post-recession.

In addition, BestWeek takes a look at how the life settlement industry is seeing signs of life after almost four years of reduced investments. However, Emmanuel Modu, managing director and global head of insurance-linked securities at A.M. Best, said the life expectancy issue is "still a big problem with the industry."

"The longer insureds live, the more premiums investors have to pay to keep those policies in force," Modu said. "A lot of investors lost money back in 2008."

And then there is the ambiguity surrounding how accurate life expectancy models really are.

"There is still a big regulatory hole regarding life settlements in terms of the accuracy of medical underwriters who determine the life expectancy of the insureds," Modu said.

BestWeek is published by A.M. Best Co. for insurance professionals. To subscribe, visit http://www.ambest.com/sales/BestWeek.

Founded in 1899, A.M. Best Co. is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright (c) 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Caroline Saucer
(908) 439-2200, ext. 5774
caroline.saucer@ambest.com