The World of Captives: Growth and Opportunities Without Borders

Factors driving the continued growth of captives include changes in US laws broadening rules for risk distribution, Solvency II in the European Union, an increase in writing nontraditional lines of coverage, and emerging markets, among others.

Captives continued to thrive in 2014, providing affirmation of their efficacy, flexibility, and stability. Noteworthy changes in laws broadening rules for risk distribution, an explosion of small captives in the US, an increase in writing nontraditional lines of coverage, continued certainty around Solvency II in Europe, special purpose vehicles (SPVs), and new emerging markets have begun to transform the captive industry and demonstrate that captive growth is likely to endure.

As business owners become aware of the benefits of captive insurance programs, the exploration of different possibilities in structures, domiciles, and coverage can create numerous opportunities. Once almost exclusive to the Fortune 500 and Financial Times Stock Exchange (FTSE) 100 companies, captives now can provide benefits to organizations of all sizes, industries, and geographic orientation. Captives have been rapidly expanding throughout the middle market space, which is anticipated to be a robust growth sector for the captive industry in the future.

Our “Captive Solutions Benchmarking Report” is based on an analysis of the more than 1,100 captives Marsh manages. Among our key findings:

• Use of captives for nontraditional risks such as political and cyber risk are growing substantially (more than 11.26% from 2013 to 2014).
• Only a little more than one-in-five captives Marsh manages (374) are using captives to access federally subsidized terrorism coverage under the Terrorism Risk Insurance Program Reauthorization Act.
• Captive domiciles are flourishing in the European Union under Solvency II.
• Emerging markets in Latin America, China, and the Middle East are further embracing the use of captives.
• Small captives are the fastest growing segment — more evidence that captives make sense for companies of all sizes.
• 47% of US owned captives actually achieve insurance tax status and deduct premiums paid to the captive.

More and more companies are finding having a captive is a strategically important corporate asset, as it raises the visibility of risk management costs and serves as an effective control tool.