From: Captive International

Captive insurers would have around $1 trillion in capacity if they leveraged their capital in surplus more aggressively and applied three times leverage, as many commercial insurers do, according to Malcolm Cutts-Watson, managing director at Cutts-Watson Consulting.

Speaking on a panel at the Asian Captive Conference 2020, titled Business Interrupted: Finding a Soft Landing in a Hardening Market, Cutts Watson cited Marsh figures that show Asian captives have $113 billion in capital in surplus, around 20 percent of the total capital in surplus for captives globally. Leveraging this figure would allow Asian captives to take on more of the emerging risks that companies have faced this year, he said.

Panelsis agreed there is increasing interest in captives and other forms of self insurance in Asia. This year has shown companies how interconnected many of their risks are, and exposed many gaps in their coverage, noted Cutts Watson.

Likening risk to Swiss cheese, he argued captives can be used to fill the gaps in the coverage offered by commercial insurers.

“The challenge for the insurance market is whether or not policy wordings are fit for purpose and meets the particular needs of the client,” he said. This is not a new issue but has been given more urgency by disputes around non property damage business interruption claims, he noted.

Thomas Keist, global captive solutions leader at Swiss Re Corporate Solutions, said self insurance allows companies to take on new risks more flexibly than commercial insurers can, which he said is particularly useful in an economic environment like today’s. Companies are increasingly considering self insurance as a way to manage risks such as non physical damage business interruption, pandemic and cyber, he said.