The number of captive insurance companies continued to grow worldwide in 2011, and some in the industry say they see indications that companies are looking at forming or ramping up use of captives in anticipation of a true turn of the traditional market.

There were 5,745 captives worldwide at the end of 2011, up from 5,587 the previous year, according to the annual Business Insurance survey of captive domiciles.

Among domiciles showing significant activity was Vermont, which licensed 41 new captives in 2011 and is the largest U.S. captive domicile.

“It was a little bit of everything again, which we love to see,” said David F. Provost, deputy commissioner in the captive insurance division of the Vermont Department of Banking, Insurance, Securities and Health Care Administration. “Some of the companies...have come right out and said, "This is a defensive move. We expect the market to tighten,'” he said.

With 590 captives at year-end 2011, Vermont ranked as the world's third-largest domicile, behind Bermuda with 862 captives and the Cayman Islands with 707.

Rounding out the top five were Guernsey with 343 captives and Barbados with 270.

“Particularly in the group (captive) area, we're seeing studies or groups that have been thinking about it for a long time,” said Brady Young, president and CEO of Strategic Risk Solutions Inc. in Concord, Mass.

“I think where you're seeing market pressure is more in the middle markets,” such companies see group captives as an alternative to a changing traditional market, Mr. Young said. While “interest in primary casualty captives has been pretty slow, that seems to be changing,” he said.

Ross Elliot, captive insurance director in the Utah Department of Insurance in Salt Lake City, said thus far he has not seen signs of a firming insurance market definitively resulting in an increase in captive formations.

“We're hearing some of those rumblings that the market is hardening, but we're not seeing any formations as a result,” Mr. Elliot said.

“I'm hearing that the market is hardening, but I think there's something of a lag in the reaction to that,” said George W. Sumner III, deputy commissioner and captive insurance administrator in the insurance division of the Hawaii Department of Commerce and Consumer Affairs. He said many companies may have to face actual premium increases before they look into forming a captive.

Hawaii licensed 10 captives in 2011 across a range of businesses, ending the year with 172. With three or four nearing licensing, “it's kind of a normal pipeline right now,” Mr. Sumner said. “The pulse is pretty much the same as it was a year ago.”

Steve Matthews, captive insurance coordinator for the state of Montana in Helena, also said captive growth as a result of hardening insurance prices has yet to occur.

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While his company's use of its Guernsey-domiciled captive is “quiet” at the moment, with usage limited to automobile liability, Richard E. Rabs, vp for claims and risk management at Veolia Transportation Inc. in Lombard, Ill., said that could change if the traditional market hardening expands.

If “things start tightening up around our other areas, perhaps there will be incentive then to expand the role of the captive,” Mr. Rabs said.

Many domiciles—particularly well-established ones—continued to dissolve captives in 2011, often after parent companies merged. The pace of such captive cleanup efforts appeared to slow in 2011, however.

“That's primarily because of mergers,” said Mr. Sumner. Other dissolutions resulted from parent companies or groups falling victim to the economic downturn, he said. “The mortgage industry's been hit, the construction industry, that's part of it. Nothing out of the ordinary—other than it's a bad economy.”

Mr. Provost said Vermont recently had a rare example of the reverse of the captive dissolution trend fueled by mergers and acquisitions.

“One of the companies that we licensed was a spinoff from a company that had a captive here,” Mr. Provost said.

Those in the captive industry see several areas potentially fueling captive formations. Utah's Mr. Elliot said the federal health care reform law may affect captive formations as employers seek alternative ways to fund their health benefits programs.

“I'm curious about what's going to happen with health care—how much that is going to impact captives and how many captives may be formed as a result of that,” he said.

“Our largest growth in number of captives (in 2011) was in health care-related captives,” such as nursing homes, hospitals, and other organizations with medical malpractice and professional liability risks for physicians, Mr. Elliot said.

Hawaii's Mr. Sumner sees recent disasters in Asia driving captive interest.

“Supply chain coverage—that would probably be a big one,” Mr. Sumner said, particularly for technology firms in Thailand.

In the European Union, captive parents and others in the industry continue to anticipate the impact of the Solvency II regulatory regime.

Offshore, SRS manages captives in both Bermuda and the Cayman Islands, and Mr. Young said his company sees continued interest in captive formations in those domiciles.

“Net growth is not great,” he said. “But we still have steady new formations. We're forming new captives in both domiciles.”