Mounting interest in casualty captives as market toughens

Multinationals are increasingly looking to put casualty exposures within captives, particular for areas where the insurance market is proving difficult, such as US risks, Zurich has told Commercial Risk.

“In the last two months, we have seen more appetite [for casualty] from captives, especially where it is more challenging from a coverage, segment or product part of the business. While not yet a trend, we are starting to see more interest from companies looking for a fronting partner, using their captive, and then have reinsurance retroceding to the captive,” said Lisa Williams, global head of Casualty at Zurich Insurance in Switzerland.

“Large companies want to control the pricing landscape and better use their captive and capital. It certainly makes sense. By having multiple lines in a captive, they get diversification credits and they can implement good risk management,” she added.

The rising interest in captives comes as multinational companies with US casualty exposures face higher risks and insurance costs, as insurers and reinsurers react to persistently high loss ratios and social inflation.

Renewals have seen insurers reducing overall casualty limits, or US-specific limits, and increasing their attachment on a global programme with US exposure. In some cases, insurers have not renewed US casualty risk.

And so risk management and risk engineering are becoming increasingly important to manage difficult exposures, not least those in the US, experts say.

Williams believes that loss control and loss prevention will become even more critical going forward to manage the impact of social inflation rises in the US and regulatory changes in Europe.

“Being socially responsible, and upholding standards – like road safety, product safety, operations and premises safety – is really important. If you have good rigour around those, it is much easier to defend those companies,” she said.

Peter Linehan, executive director for US casualty at broker Gallagher in the UK, said companies with US exposures are at the mercy of the US legal system, while litigation funding is gaining momentum every year and is no longer limited to large headline legal cases. So he too stressed the importance of risk management, not least in helping to achieve the best from insurers.

“Risk management plays a huge part, and anywhere that an insured can demonstrate better practices in mitigating incidents or can exceed industry standards will be viewed positively by insurers, and they may improve terms/coverage. However, sometimes even these risk management procedures are not enough – and being in the wrong place at the wrong time can be enough, rather than being at fault,” he said.