Corporate risk managers in Europe and worldwide are increasingly using captives to provide cover for non-traditional risks, according to a new benchmarking report published by global broker and captive manager Marsh.
The broker's research is based on a survey of 1,100 captives currently managed by Marsh. The findings support evidence gathered by Commercial Risk Europe as part of our annual Risk Frontiers surveys. The research clearly shows that risk managers are being forced to use their captives to cover and manage emerging risks, such as cyber and supply chain, because affordable coverage is simply not available in the open market.
Insurers and brokers are working hard to find solutions. The market for cyber coverage, for example, is improving. But there is also growing evidence to suggest that if the commercial insurance market fails to respond quicker, risk managers will simply decide to retain more of their risk and invest their budget in risk management solutions instead of transfer premiums.
There is also a possibility that risk managers will seek to tap the capital markets directly via their captives to try and transfer some of the risks.
Marsh's report, entitled The World of Captives: Growth and Opportunities Without Borders, states that the number of captives that write non-traditional coverage lines rose overall by 11% in 2014. ´
"As more companies use data and analytics to better quantify their emerging risks and optimise their retained risk, the utilisation of a captive to finance retained traditional and emerging risk is a logical next step," said Christopher Lay, President of Marsh Captive Solutions.
Risk managers in less mature regions such as Latin America, Asia and the Middle East are increasingly interested in the risk financing options offered by captives, added Marsh. Other highlights from the report include:
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Financial institutions represent the largest users of captives worldwide. Some 269 captives write $20bn of annual premium and hold a combined surplus in excess of $35bn.
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The number of captives owned by communication, media, and technology (CMT) companies ranks seventh among the industries that were benchmarked. These companies, however, generate the second-largest amount of premium that reached $3.2bn.
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There were eight captive re-domestications in 2014. This was down from 11 in 2013 and 16 in 2012. Marsh concluded that this, once again, showed no major trend in captives moving domiciles.
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Hong Kong now has three captives and plans to attract many more from the wider Asian region including companies from China.
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