Self insuring risk top reason for forming captive: Marsh survey

Self insuring risk is the top reason captive owners form a captive, while writing third-party business ranks at the bottom of the list, according to a survey of 1,100 captives managed by Marsh Captive Solutions.

Marsh-managed captive owners cited numerous reasons for forming a captive, with self insuring risk cited by 60% of respondents, followed by access to reinsurance at 42% and design of and manuscript of own policy form at 41%, according to the 2018 Captive Landscape Report released on Wednesday. Only 12% of captive owners cited writing third-party business as a reason for formation.

The cumulative growth in the number of Marsh-managed captives writing cyber liability rose by 240% from 2012 to 2017, while the number of captives insuring employee benefits across multiple geographies grew by 550%, according to the report.

“We believe interest will continue to increase in this area as rising medical costs globally remain a significant expense for organizations,” the report stated.

But most Marsh-managed captives – 58.7% – will not consider covering employee benefits such as group life, multinational pooling for health and disability and voluntary benefits in their captives, according to the report. Only 19% said they were likely to consider covering employee benefits in their captives, while 15.7% said they were currently considering writing such benefits and 6.6% reported they currently are writing these benefits in their captives.

Meanwhile, there was an 83% increase in the number of Marsh-managed captives writing terrorism coverage backed by the Terrorism Risk Insurance Program Reauthorization Act of 2015 in the 2012 to 2017 time period.

Among captive owners with offshore captives, 55.5% elected to have their captives taxed as U.S. companies, according to the report.

“Taking a U.S. tax position, however, is not the same as realizing tax benefits from U.S. or other authorities,” the report stated. “Deriving tax benefits depends on a captive meeting certain criteria to qualify as an insurance entity.”

Financial institutions had the biggest share of Marsh-managed captives, both by premium volume at $20.9 billion and percentage at 24%.