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Captive use accelerates as market hardens: Report


Most companies that own captive insurers plan to increase their use of the alternative risk transfer vehicles in response to difficult insurance market conditions, according to a Marsh LLC report released Thursday.

The analysis of captives managed by Marsh found that 59% of captive owners expect to add more lines of coverage, increase retentions in the captive, or form an additional captive.

In many cases captive owners have already taken action, Marsh said.

Coverages written by Marsh-managed captives saw steep growth in gross premiums in the past year due to the tightening insurance market, said Marsh, which is the world’s largest captive manager with 1,380 captives under management, according to Business Insurance’s most recent ranking.

All-risk property, directors and officers liability, supply chain and business interruption and contingent business interruption are all seeing increases, pointing to “a dramatic change on the horizon for next year,” Marsh said.

Supply chain, business interruption and contingent business interruption premiums in Marsh-managed captives jumped by 283% on average in 2019, with premium growth of $185.9 million, the report found.

All-risk property premiums rose by 64% or $2.4 billion in 2019, the report found.

The increase in all-risk property premiums was led by the energy and financial institutions sectors, which saw all-risk property premiums rise 151% and 104% respectively, Marsh said in a statement.

As excess liability capacity has reduced, some companies are using captives to fill gaps in their coverage towers, the report said. This was led by health care, which saw a 33% increase in excess premium in 2019, Marsh said.

In construction, increased market pricing led to a 200% increase in professional liability premium driven to captives in 2019, Marsh said.

Meanwhile, global captive growth in the past five years has occurred mainly in emerging markets, led by Latin America and Asia-Pacific, the report found.

This was due mainly to “pronounced Australian insurance market challenges,” Marsh said.

Europe, however, has seen the overall number of captives remain flat, though premium volume has increased by 8%, according to the report.

Financial institutions is the business sector with the largest number of Marsh clients owning captives, accounting for 21% of captives, followed by health care with 11% and manufacturing as well as retail/wholesale with 6%.

The 2020 Captive Landscape Report is based on data shared by approximately 1,240 captives worldwide managed by Marsh.