Key takeaway
The trends noted in our last issue continue, with commercial insurance rates rising at a moderate rate. Interest in traditional property and casualty captive programs typically jumps during hard market cycles, but now we see additional consideration given to emerging risks and risks not previously managed through captives.
Captives are increasingly the corporate focal point for managing and structuring risk financing in areas such as climate/weather risks, cyber, non-damage business interruption and D&O.
- This ongoing shift in captive deployment not only reflects insurance market conditions but is further enabled by better data and analytics capabilities.
- These tools are facilitating advances in quantification of both individual risks and portfolios of risks, including multiple lines of business.
- In some cases, captives may be able to cover emerging risks before traditional insurance markets have an opportunity to develop their own products.
- We continue to see an increase in the use of analytics to support decision making and to optimize cost of risk transfer in market negotiations, particularly among captive owners looking to optimize their use of capital and quantify their risk tolerance.
- We expect captives and alternative risk transfer solutions to continue to play an expanding strategic role in risk financing decisions.
- Interest in parametric solutions, especially around climate and environmental risks, remains strong, as clients seek capacity that may not be available in traditional insurance markets.
U.S. domiciles
- Early new captive formation reports suggest a strong 2022 across all industries and lines of insurance. In contrast to recent years, captive dissolutions were down in 2021 and, therefore, we expect a solid net increase in number of captives during 2022.
- Captives that built capital and surplus during the extended soft insurance market continue to be further optimized to support new lines of insurance and new offerings of limits to combat the effects of the lingering hard insurance market.
- Profit center captives are making a comeback, driven by foreign employee benefit risk and third-party risk.
- We are seeing notable expansion of captive formation and use by managed care organizations to support differences in conditions and differences in limits of commercially placed insurance programs, as the commercial market imposes more and more restrictive coverage terms.
Americas offshore
- The key Atlantic and Caribbean domiciles of Bermuda and the Cayman Islands have seen strong growth in the number of new captive insurance licenses issued.
- New activity remains largely focused on business from North America, with additional activity from Latin America. Europe continues to generate activity, while interest from Asia and Australasia appears to be increasing.
- Cayman continues to see new activity in the healthcare sector, which remains its largest generator of captive business, but the type of business written is diversifying.
- Bermuda activity remains centered on larger, more complex global programs at one end of the scale, but also segregated account (cell) business at the other.
- International employee benefits captives are gaining some traction in Bermuda.
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