The good news: The outlook for the captive industry is stable, as participants exercise their financial flexibility in a softening market. The bad news: U.S. captive insurers' net income declined approximately 66% in 2008 for a composite of 186 captive companies represented in an A.M. Best Co. special report. This reflects realized losses of $1.2 billion for the year, a large percentage of which resulted from one company's investment losses.

Additionally, A.M. Best found that net underwriting income actually increased over the prior year—evidence of the captive industry's typical underwriting discipline, and its inclination not to rely on investment income. And, overall, captives generated gross investment income of $1.8 billion in 2008, down only 7% from 2007.

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