ORLANDO, Florida – Insurers in catastrophe-exposed states can use captives to soften the effect of reinsurance rate hikes and higher attachment points, a panel of experts said.

The vehicles also allow insurers to add flexibility to their reinsurance programs and reap some of the benefits that other captive owners obtain through alternative risk transfer, they said during a session Thursday at the World Captive Forum, which is sponsored by Business Insurance.

The property catastrophe reinsurance market turned hard two years ago, with prices rising 50% since then, which prompted insurers that had used captives in the past to use them again and generated interest in captives by insurers that had not used them, said Ken Vincent, a Tampa, Florida-based managing director at Guy Carpenter & Co. LLC.

In addition to raising rates, reinsurers increased attachment points, limiting cedent’s options on lower layers of coverage, and carved various perils into separate coverages, he said.

In addition to less coverage, “the ability of primary insurers to make an underwriting profit was in jeopardy because of the exponential increase in reinsurance coverage,” Mr. Vincent said.

And the insurers faced pressure from regulators to raise more capital to offset the reduction in protection, he said.

Heritage Insurance Holdings Inc. has owned a captive since it first formed in Tampa in 2012, said Sharon Binnum, chief accounting officer at the personal and commercial lines insurer, which operates in 16 states and writes about $1.3 billion in annual premium.

“The captive is an arrow in the quiver; you might need it, you might not need it, but you’ve got to get it set up and ready,” she said.

A captive provides flexibility to help manage reinsurance cycles, Ms. Binnum said. For example, it can cover a “sliver” of a portfolio if reinsurance is not available for certain risks, it can be used at the top of a tower of coverage, and in other circumstances it can be used at the bottom of a tower.

In addition, the captive offers flexibility in the length of the terms of coverage, retentions can be set at whatever level the cedent wants, and it can be used to provide aggregate coverage, she said.

“You can do whatever you need to do to optimize both for your consolidated company and also your individual insurance companies to make sure the risk transfer program is solid and makes sense depending upon the risk tolerance of the company,” Ms. Binnum said.

In addition, captives provide some flexibility in pricing of reinsurance, and cedents can control the timing of reinsurance recoveries.

Captives also allow insurers “to make money on your own money” from the higher interest rates of the past two years, Ms. Binnum said.

Captives enable owners to better control their reinsurance programs, and their use by insurers is becoming more common in many states, said Fred Karlinsky, a Fort Lauderdale, Florida-based shareholder at Greenberg Traurig LLP, who moderated the session.

“They really allow you to stabilize your reinsurance buying,” he said.