Captives keep marching on

The captive insurance sector is remarkably resilient. In the last 30 years the sector has successfully navigated soft market cycles and the unwanted attention of regulators. It has also managed to survive the hostility of revenue authorities and has coped admirably with dramatic reductions in the tax benefits that used to be associated with captives.

The sector is currently responding to a prolonged soft market that shows no sign of hardening by expanding year on year, both in terms of the number of captives and the premium written by those captives. The sector is also growing almost every year in terms of the number of domiciles looking to attract captive business worldwide.

But crucially for the sector, the uses to which captives are being put are broadening. A lot of this is down to the innovations brought in, most notably the introduction of cell captives. For a long time, captives were focused on the standard property/casualty risks, with talk about the potential of captives for employee benefits and other lines, but little done in practice.

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But that is changing, as captive owners look to use the capital in their captives to greater effect, and look to utilise their captives to fund difficult risks. Employee benefits being written through a captive is now a reality for many, especially in the US.

Longevity risk is one of the most talked about risks in the context of captive insurance, with huge potential, and definite interest from the reinsurance industry.

And a look at CICA’s latest survey of members shows a huge range of non-traditional risks not only being planned, but actually being written by captives, from emerging risks such as cyber, to customer risks and product warranty, and from medical stop loss and product recall, to benefit risks such as employee/retiree life and longevity/pension risk.

The future looks good for captives. There are very few risks that cannot be considered by a captive, and more and more risks are now being considered. Meanwhile, most captive domiciles have successfully negotiated hurdles such as harmful tax practices reviews and Solvency II type regimes. It looks like a case of what doesn’t kill you makes you stronger.