Captive use expanding to Asia and Latin America, says Swiss Re Institute

As rate hardening and Covid-19 disruption affect commercial insurance, companies are increasingly using captive insurance to self-insure their risks, and their use is expanding to Asia and Latin America, according to the latest Economic Insight from Swiss Re Institute. The insight, Hard market solutions: captive insurance thrives in tough times, notes that captives are also expanding to mid-sized companies, “for which new business models for captives open up options to self-insure more flexibly and efficiently”. Swiss Re says the current rate hardening is the strongest in 20 years and it expects this to continue into 2022. “Commercial insurance markets are experiencing rate increases, capacity reductions and tighter underwriter scrutiny as the market reacts to Covid-19-related losses, social inflation, above-average catastrophe losses and secular downward pressure on investment returns.” The disruption and uncertainty in global commercial insurance markets caused by rate hardening and the pandemic are prompting companies to explore captive insurance, says Swiss Re. “Many commercial insurance programmes are increasing deductibles, retentions and co-insurance as ways to curb insurance spending. The pressure is leading companies to increase their utilisation of existing captive insurers and form new captives,” it adds. The Swiss Re insight points out that there are now more captive insurance companies than traditional insurers globally, estimated at more than 7,000 captives domiciled in more than 70 jurisdictions. “With high saturation among large corporations in North America and Europe, the use of captives is spreading geographically to Asia and Latin America. Globally, 46% of companies are likely to explore a new captive, according to a recent survey by Aon. In Asia-Pacific and Latin America, where use of captives is lower, that share is higher with 57% of respondents,” it states. It further notes that captive use is expanding to mid-sized companies in line with the growth of alternative structures and business models for captive insurers, which fit the needs of a wider spectrum of organisations. It says structures such as protected cell companies and virtual captives enable smaller corporates to access the benefits of captive insurance without needing to set up the infrastructure themselves. Swiss Re concludes: “We expect to see continuing momentum in the global market for captive insurance as companies seek a more flexible and efficient insurance solution amidst uncertainty and a hard market.” Commercial Risk is hosting a Captives Management Conference on 10-12 May 2021. Drawing on the expertise of senior risk managers from across Europe, this conference will consider the key issues and also provide education and practical advice for those moving towards a captive option for the first time. It will also provide an opportunity for those who already have a captive to learn more about maximising their programmes. Make sure you register NOW for your free place

Captive use expanding to Asia and Latin America, says Swiss Re Institute

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