U.S. captive insurers saw their net income double in 2009, A.M. Best Co. Inc. said in a Monday report.

U.S. captives reported net income of $1.76 billion in 2009 compared with $880.4 million in 2008, Best said in its 2009 review of 195 U.S. captive insurers that it follows.

Oldwick, N.J.-based Best said the captive industry’s recovery can be attributed to its realized capital gains, which totaled $82 million in 2009 vs. a $1.2 billion loss in 2008.

Meanwhile, net underwriting income slipped in 2009 to $654.6 million from $769.3 million in 2008.

Best said its outlook on the captive industry remains stable.

In the report, Best analysts said although underwriting income decreased in 2009, captives continued to focus on providing coverage and stable pricing and “not on producing large underwriting profits.”

“The overall increase in net income allowed the captives to initiate some decreases in rates to better compete in a soft market,” Best said in its report. One advantage for captive insurers, Best said, was that despite softening market conditions, captives are able to compete not only on price but also with customized policies and services for their policyholders. Further, captives can offer premium credits or dividends to offset the overall cost or effective rate of the policy, and can maintain steady rates during the hard market phase of the underwriting cycle.

Captive formations go on even as the commercial markets soften; however, new captive domiciles are finding it difficult to establish their presence in the market, Best said.

Copyright © 2010 Crain Communications, Inc.