Captive growth will continue, says Marsh

The captive insurance market is set to grow further despite a more competitive commercial insurance market, according to captive manager Marsh.

Captive premiums grew again in 2023, driven by both existing and new captives, according to Marsh figures. Gross written premium written by Marsh captive clients reached $73bn in 2023, up from $70bn in 2022, $68bn in 2021 and $61bn in 2020.

“Although the market is moderating from a pricing perspective, companies are still seeing lots of benefit from the quantitate and qualitative aspects of captives. Marsh set up 125 new captives last year, and about 500 new captives over the last four years. Those numbers in themselves show the phenomenal growth we have seen at Marsh,” said Robert Geraghty, SVP and international sales and consulting leader at Marsh Captive Solutions.

“It has been a challenging commercial insurance market but it is now moderating. Will it change things? No, I think we will continue to see strong formations and growth. It’s not only about cost savings – there are plenty of other advantages to captives as well. We are doing lots of feasibility studies again this year and lots of strategic reviews. Companies are looking at how can they optimise their captives and use them more than they have,” said Geraghty, as Airmic gathered for its annual conference.

The captive market is expected to grow again in 2024 and 2025, but the emphasis may turn to increased use of existing captives rather than companies setting up new vehicles, predicts Geraghty. “The numbers of captives are still increasing, but it may be that we have companies with captives taking on new risk as opposed to loads of brand new setups. Companies that have established captives in recent years will now be looking at whether to increase retentions or add new lines,” he said.

Captive premiums are increasing as companies take on more risk. “We saw a big increase in property last year – we are up to about $12.5bn last year from $10bn in gross written premium. That is the number one underwritten risk in our captives but that is still a big increase in one year,” said Geraghty.

“Retentions have increased among captives. Because companies understand their own risk, and particularly where they have had a captive in place for a number of years and have built up some surplus, they may want to take on more risk, or write more lines of business in the captive,” he said.

Marsh has also seen an increase in companies writing additional lines of business within their captives, including D&O, trade credit, political risk, crime and professional liability, as well as excess liability and employee benefits, according to Geraghty. Larger captives now write on average six lines of business, up from around four a few years ago.

“Companies that have captives are retaining more, and companies are setting up captives and protected cells to write property. But we have also seen a big increase in non-traditional lines,” he said.

Cyber is a notable growth area for captives across all industries, and in particular for those companies holding large amounts of data, explained Geraghty.

“We now have over 100 captives writing cyber, with a 17% year-on-year increase in cyber premiums last year. Cyber is now in the top ten most popular written risks in captives, while ten years ago it would have barely made it on to the list of lines written,” he said.

As companies take a more strategic view of their captives, some are writing more excess and gap layers, he continued. For example, Marsh saw an increase in excess liability written by captives last year.

There has also been a big increase in protected cell companies (PCCs), which can be set up much faster and easier than full blown captives. Gross written premiums in PCCs grew 75% year-on-year, while cell formations increased 10%, said Geraghty.

“We have seen a lot of companies looking to add or set up protected cells to assist with risk management, particularly for property and particularly for cyber,” he said.

Captive growth has been widespread, according to Geraghty. Guernsey, Isle of Man, Dublin, Luxembourg, Malta and Sweden have seen growth in Europe, while Singapore has led growth in Asia. And following the success of France, which has attracted captives since changing its laws last year, other countries are now looking to create captive regimes, noted Geraghty.

“I have been in captives all my career and I have never seen so many countries looking at, or at least talking about implementing, captive legislation, which shows that captives are becoming more mainstream and the benefits better understood from a global perspective,” said Geraghty.

“Some countries are looking at setting up captive legislation and some countries that already have legislation are looking at how they can they offer more and be more proactive from a captive perspective,” he said.