From: Captive International
Driven by a challenging risk transfer environment, risk managers have shown a growing interest in forming captives in recent years—a trend that is likely to continue, Laurent Nihoul, board member and chair of the Captive Committee, FERMA, told FERMA Forum Today.
“There has clearly been an uptick in captive interest over the last years. The captive insurance and reinsurance industry has experienced significant growth in both GWP and the number of entities, driven by increasing awareness of the benefits, a challenging risk transfer environment, and the evolving risk landscape,” he said.
He noted that Marsh reported in its latest “Captive trends and insights” report that between 2020 and 2023 it set up approximately 500 new captives, while its total captives premium managed increased from $49 billion to $73 billion between 2018—the onset of the hardening market—and 2023.
Nihoul commented that, beyond the hardening market, which is now slowing down, other factors are driving this growth. These include developments such as the transition to net zero and the challenges in obtaining insurance for new technologies, and the evolution of emerging risks like cyber and increasing supply chain exposures which continue to require innovative risk financing solutions.
“I do not expect this trend to slow down. Firstly, because the risk landscape is continuing to evolve rapidly, and secondly because the insurance market is facing challenges in providing relevant solutions in a timely manner for these evolving risks. Captives will therefore continue to be an efficient means of addressing issues such as capacity shortages and restrictions in terms and conditions,” Nihoul said.
One key development also driving interest in captives was the recent Solvency II amendments, he noted. The first key change in the updated Solvency II Directive was the introduction of the concept of “small and non-complex” (SNC) insurance companies, which will bring much more clarity and consistency across EU Member States.
The second key change, Nihoul noted, is what he calls the idea of reversing the burden of proof. “This means that undertakings classified as ‘small and non-complex’ may use all proportionality measures, except where the supervisory authority has serious concerns in relation to the risk profile, provided this concern is duly explained.”
