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Interest in ART vehicles grows among smaller firms


The use of alternative captive structures such as special-purpose vehicles and risk retention groups is growing, reflecting increased interest by smaller companies in alternative risk financing, a Marsh Inc. report shows.

Ninety-two percent of all special-purpose vehicles formed by Marsh were launched between 2001 and 2011. There were no formations between1991 and 2000, and the rest were formed between 1981 and 1990.

Similarly, 89% of the RRGs formed by Marsh were established between 2001 and 2011, while 11% were formed between 1981 and 1990.

Meanwhile, of all the rent-a-captives and protected cell company formations by Marsh, 58% were launched between 2001 and 2011, 35% were formed between 1991 and 2000, 4% between 1981 and 1990, and just 3% before 1981.

“We’re seeing growth in multi-owner arrangements, like rent-a-captives and protected cell companies, but not group captives,” Arthur G. Koritzinsky, Norwalk, Conn.-based managing director of captive solutions at Marsh USA Inc., said during a Tuesday news conference at the Risk & Insurance Management Society Inc. conference in Philadelphia.

“It allows smaller companies to put their toes in the captive water,” he said.

Organizations forming new captives are more likely to do so onshore rather than offshore, according to the report, “Integral and Mainstream—Captives in 21st Century Risk Management.” During the past decade, 52% of Marsh captives formed were established onshore compared with 48% offshore. Between 1991 and 2000, 65% of captives were formed offshore vs. 35% onshore.

While Bermuda continues to rank as a preferred domicile for most U.S. and European Marsh captive clients, it is closely followed by Vermont, which is home to more than 40% of onshore captives and nearly 60% of the captives owned by companies in North, South and Central America.

Rounding out the 10 largest domiciles are Cayman Islands; Luxembourg; South Carolina, Hawaii, Dublin; Singapore, Guernsey and Barbados.

The report, based on the activities of more than 1,200 captive insurers with U.S. or European owners, also found that the health care sector has seen the largest increase in captive formations and now represents 17% of Marsh’s captive clients, up from 11% in 2008, the first year that Marsh published its captive benchmarking report.

However, financial institutions remain the largest users of captives with a 21% share, up slightly from 20% in 2008.

Among other trends identified in Marsh’s 2012 captive benchmarking report:

• Captive owners in the United States are increasingly assessing the viability of assuming employee benefits risks, including health care.

• Real estate captive owners are inquiring about using captives to provide tenant default insurance.

• Many captive owners, especially retail and consumer product companies, are considering the use of captives to finance cyber risks.

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