Marsh Captive Solutions benchmarking results
By various measures, the use of captive insurers is growing across the board. As risk-funding vehicles that offer numerous advantages, interest in using captives is higher than ever.
In the past three years, Marsh clients formed nearly 400 new captive entities. Globally, Marsh Captive Solutions now manages approximately 1,900 captives and other entities across 55 domiciles — that equates to one in every four captives. Premium volume of Marsh-managed captives has topped US$70 billion, with surplus of almost $120 billion.
Captive Growth
- Growth by Region
- Growth by Line
In all regions, captive premium growth over the past two years continued to trend upward. Even mature captive markets, such as Europe and the island domiciles, have seen growth. For example:
- North America: Premiums for captives with North America-based parents were up 15%, while the major island domiciles of Bermuda, Cayman Islands, and Barbados have collectively seen premiums grow by 11%.
- Europe: Guernsey and Luxembourg, two leading European domiciles, have seen premium growth of 13% and 36%, respectively.
- UK: Premiums increased 8%.
- Asia: Captives with Asia-based parents wrote 58% more premium.
- Latin America: Premiums among captives with parents based in Latin America grew 36%.
Historically, captive growth has occurred during periods of rising commercial insurance pricing as buyers retain more risk. However, even as rate increases began to slow for certain lines of business and regions, captives continued to grow — a trend Marsh foresees continuing.
Traditional property and casualty coverages account for the largest segment of captive premium, at 36%. Other coverages that Marsh-managed captives fund are: life insurance, 30%; employee benefits, 19%; and financial lines, 15%.
Interest in non-traditional lines of coverage also continues to grow. On the employee benefit side, medical stop-loss premiums in captives were up 32%, while in voluntary benefits it increased 39%. On the casualty side, directors and officers (D&O) liability increased 100%. Cyber premiums in captives have risen 57%, and notably the number of Marsh-managed captives writing cyber has increased by more than 75%.
During the hard property market of recent years, Marsh captives have experienced a 7% premium increase just in North America. Fronted reinsurance, quota shares, excess, and captives have been participating in property layers in new ways.
Casualty coverage, long a backbone of captives is also undergoing an evolution. Many captive owners want to know how to become smarter about what they are financing. There has been a lot of growth in the casualty space, with workers’ compensation remaining the biggest segment.
The challenging market has caused some captive owners to ask how they can change their approach to get different results from the past. This is manifesting in such things as tie-ins to employee benefits, collaboration with HR, and growth and expansion of the captive footprint.
Third-party business had historically represented a small fraction of captive premium, but is now 27% of Marsh-managed captive premium. More captive owners are interested in capturing underwriting profit and investment income on cash flow associated with insuring third-party risks. In addition to diversifying the captive’s risk portfolio, third-party coverages — such as pet insurance, umbrella liability, automobile, and extended warranties — can enhance a captive’s profitability.
Putting such a diverse set of risk categories into the captive helps to spread volatility across multiple coverage lines, and can lower volatility in the captive itself.
Cell captives multiplying
Captives come in several forms, including single-parent captives, group captives, and protected cells, which is one of the fastest-growing forms. Cells are variously known as protected cell companies (PCCs), segregated portfolio companies (SPCs), segregated account companies (SACs), or incorporated cell companies (ICCs). Their names may vary from domicile to domicile, but their structure is similar in that each cell is individually capitalized and separated from other cells — and often referred to as a rent-a-captive.
Protected cell captives represent 25% of new captive entity formations for Marsh Captive Solutions in the US and globally. Advantages of protected cell captives include:
- Up to 50% lower operating costs, compared to a single-parent captive.
- Set-up time can be as short as a few days, rather than months.
- Established infrastructure of service providers.
- Potential to achieve same financial advantages as a single-parent captive.
Industry sectors find value in captives
A number of trends can be seen in the top five industries for captive premium growth.
