Scor’s analysis of European captive sector provides benchmark for owners

The European captive sector is growing in terms of gross written premium (GWP), with the largest captives writing in excess of €200m, according to analysis of European captives from Scor. The reinsurer’s study, European Captives – Analytical Review of Solvency II Reports, found that the vast majority of European captives are based in Luxembourg or Ireland, and more than three quarters are reinsurance captives. For the review, Scor identified more than 300 licensed insurance or reinsurance companies acting as captives. Of these, 187 meet Scor’s selection criteria: they belong to an industrial or commercial company that can be identified, they write P&C risk, and they release a solvency and financial condition report. The review found that 88% of the captives in the sample are domiciled in Luxembourg or Ireland. Other domiciles include Sweden, Malta, Norway, the Netherlands, Germany and Gibraltar. The headquarters of the captive owners are mostly based in western European countries, primarily France, Belgium and Germany. The survey showed that US-based groups mostly locate their European captives in Ireland (91%), while groups based in Belgium (100%), Spain (83%) and France (80%) mostly base their captives in Luxembourg. According to Scor, total premium of the sample group is close to €4,400m, including €2,100m in Luxembourg and €1,600m in Ireland. Overall GWP of the sample grew by 3.2% between 2018 and 2019, and by 4.8% between 2019 and 2020. The largest captives exceed €200m, while the smallest ones write less than €0.1m. Indeed, the top 1% of the captives account for 10% of the sample premium, which is as much as the bottom 58%, while 10% of the captives account for half the total premium across the sample. Property business is the most frequent cover written, with 72% of the captives writing some, while liability business is the second most frequent line, written by 60% of the captives. Motor is the least common line of business, written by only 13%. Miscellaneous financial loss, defined as “any other risk of non-life insurance not covered by the [other regulatory] lines of business”, is written by 47% of the captives. Gross written premium can be further differentiated between the premium written directly and premium assumed via reinsurance. The review found that 22% of the captives in the sample write direct business. It states: “When they have a licence to operate in one class, insurance captives can provide reinsurance services and take on any business from other insurance companies, provided their articles of incorporation permit it. Fifty-four percent of the insurance captives in the sample do this. Seventy-eight percent of the captives in the sample write only accepted business. To do so, they need only one general ‘reinsurance’ licence.” Scor says premium is mostly accepted through proportional reinsurance (e.g. quota share), while non-proportional reinsurance contracts (e.g. excess of loss) account for 18% of the total. It adds that 26% of the premium written by the captives is retroceded – 62% of the captives retrocede 10% or less of their GWP, while 6% of the captives retrocede more than 80% of their GWP. Scor notes that distribution of loss ratio is “highly volatile”, with one in five captives reporting a total loss ratio of zero or below, and one in five reporting a total loss ratio of more than 100%, while for 1% of captives, the loss ratio exceeds 500%.

Scor’s analysis of European captive sector provides benchmark for owners

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