Boom time for captives in Europe

The last few years have undoubtedly been a boom time for captives, driven by hard market conditions, new and emerging risks that the insurance industry has been unwilling to cover, and increased volatility around the world.

Statistics show that the number of captives has been on the increase, and most domiciles around the globe have seen new formations on the up. The number of captives has been increasing for the last four years, from 5,879 in 2020, to 6,074 in 2021, to 6093 in 2022 and 6181 at the end of 2023, according to the Captive Managers and Domiciles Rankings + Directory 2024 published by Business Insurance.

But it is not just about new formations. Perhaps more importantly, more business is being put through existing captives as owners increase their retentions and accept more risk through their captives.

The captive insurance market is set to grow further despite a more competitive commercial insurance market, according to Marsh, pointing out that captive premiums grew again in 2023, driven by both existing and new captives. Gross written premium written by Marsh captive clients reached $73bn in 2023, up from $70bn in 2022, $68bn in 2021 and $61bn in 2020. Property was the driving force behind this, with a big increase in property last year – about $12.5bn in gross written premium in 2023 from $10bn the previous year.

There is also increasing use of the captive as an incubator for difficult or new risks. New risks include renewables, where insurers have cited a lack of data and therefore an unwillingness to provide meaningful coverage. In these cases, corporates have turned to their captives to provide insurance and also to be a centralising vehicle for the collection of data on the risks. All of which will ultimately help to provide some comfort to underwriters to participate in the risks.

Examples of difficult-to-place risks, or those where prices are high or limits low, in the last few years include cyber, where prices increased dramatically, together with property, especially in nat-cat affected regions. Property rates in the US in particular have increased, with more companies choosing to put more risk into the captives.

The other big trend in the captive sector is the move onshore. The US has long seen a move to onshore domiciles, with practically every US state now a captive domicile (or so it appears). Indeed, Vermont is now the largest captive domicile in the world, moving above Bermuda and Cayman, according to the rankings from Business Insurance.

But the onshore trend is now arriving in Europe, with France leading the way, bringing in new rules that make it more attractive to create captives in the country.

In the UK, Lloyd’s recently announced its first captive for many years, and the UK government is being urged to make it even more attractive to host onshore captives in the UK. At the same time, Italy is also being urged to attract captives, and there is pressure growing in Spain and Germany, to add to the existing domiciles such as Ireland, Sweden and Switzerland.

The arguments for the UK becoming more friendly to captive domiciliation, and the attractions and challenges of hosting a captive at Lloyd’s, can be heard at Commercial Risk’s upcoming Global Programmes Europe conference in London on 18 September. There is also a session on the rise of onshore captives and how France changed its rules, and what needs to happen to persuade the German and Spanish authorities to buy in to the idea.

And a workshop will look at the best way of using a captive to support a global programme and maximise coverage and cost benefits, and examine how a captive be used to tackle difficult emerging risks.

For more information on the conference and to register, please got to www.commercialriskonline.com/events/conference-global-programmes-europe-2024/