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RESEARCH and BRIEFINGS

The World of Captives: Growth and Opportunities without Borders

 


Captives continued to thrive in 2014, providing affirmation of their efficacy, flexibility, and stability. Certainty around Solvency II in Europe, changes in laws broadening rules for risk distribution, an explosion of small captives in the US, an increase in writing non-traditional lines of coverage, special purpose vehicles (SPVs), and new emerging markets, have all begun to transform the captive industry and demonstrate that captive growth is likely to endure.

As business owners become aware of the benefits of captive insurance programmes, the exploration of different possibilities in structures, domiciles, and coverage can create numerous opportunities. Once almost exclusive to Financial Times Stock Exchange (FTSE) 100 and Fortune 500 companies, captives now can provide benefits to organisations of all sizes, industries, and geographic orientation. Captives have been rapidly expanding among midsize companies, which are expected to be a robust growth sector for the captive industry in the future.

The World of Captives: Growth and Opportunities without Borders is based on an analysis of the more than 1,100 captives Marsh manages. Among our key findings:

  • Use of captives for non-traditional risks such as political and cyber risk are growing substantially (more than 11.26% from 2013 to 2014). 
  • Captive domiciles are flourishing in the European Union under Solvency II.
  • Only a little more than one-in-five captives Marsh manages (374) are using captives to access US federally subsidised terrorism coverage under the US Terrorism Risk Insurance Program Reauthorization Act. 
  • Emerging markets in Latin America, China, and the Middle East are further embracing the use of captives.
  • Small captives are the fastest growing segment – more evidence that captives make sense for companies of all sizes. 
  • Nearly half (47%) of US-owned captives actually achieve insurance tax status and deduct premiums paid to the captive.

More and more companies are finding that having a captive is a strategically important corporate asset, as it raises the visibility of risk management costs and serves as an effective control tool.