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Survey Report

Insurance Marketplace Realities 2024 – Captives

November 9, 2023

While there is now less consistency in insurance rate movements than in the previous period, some difficult areas remain.
Captive and insurance management solutions|Cyber Risk Management
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Captives have been undergoing a resurgence in interest over the last two to three years, supported by an increase in formations during 2022 and continued growth in 2023. There is continuing involvement in specialty lines and the creation of diverse portfolios of risk rather than in a monoline approach.

  • Data and analytics capabilities are key enablers of change.
    • These tools are facilitating advances in quantification of both individual risks and portfolios of risks, including multiple lines of business.
    • Captives may be able to cover emerging risks based on advanced analytical capabilities before traditional insurance markets have realized the opportunity to develop their own products.
    • We continue to see an increase in the use of analytics to support decision making and to optimize cost of risk transfer in market negotiations, particularly among captive owners looking to optimize their use of capital and quantify their risk tolerance.
  • Interest in parametric solutions, especially around climate and environmental risks, remains strong, as clients seek capacity that may not be available in traditional insurance markets.

U.S. domiciles

  • In August, it was published that Vermont is now the largest captive domicile in the world, surpassing its nearest competitors Bermuda and Cayman Islands. Reports of captive formations in the first half of 2023 remain strong.
  • There is continued interest in using captives for property coverage given the difficulties in the commercial property insurance market.
  • Mature captives with sufficient capital and surplus continue to be used as excess capacity in all lines of business to combat pricing and reduced capacity in the commercial market.
  • Optimization and diversification of the captive’s portfolio of risks supported by analytics continue to drive innovation.
  • A resurgence of terrorism captives is taking advantage of better pricing in the commercial reinsurance market over stand-alones directly placed or imbedded in property placements.

Americas offshore

  • The key Atlantic and Caribbean domiciles of Bermuda and the Cayman Islands continue to see growth in the number of new captive insurance licenses issued.
  • Through July 2023, there were 12 new captive licenses issued in Bermuda compared to 18 in the prior full year. Cayman saw 21 new licenses issued through June 30, 2023, compared to 33 licenses issued during all of 2022.
  • New activity remains largely focused on business from North America, but there is a marked increase in interest globally with these domiciles tending to be favored for captives involved in large and complex global programs. WTW has seen activity from both the U.K. and Asia.
  • Bermuda and Cayman have growing numbers of internal reinsurers formed by commercial insurers to take advantage of flexible regulatory environments. These may not be captives in the eyes of local regulators but are viewed as such by their owners.
  • Outside of captive business there is extensive activity relating to the formation of life and annuity reinsurance entities, both in Bermuda and Cayman.
  • While Bermuda’s core business remains focused on large and complex global programs, growth of segregated accounts (cell) business remains strong, targeting smaller clients and solutions for individual programs as opposed to portfolios of risk.
  • WTW has managed some Side A D&O business on a funded basis through Meridian Insurance Limited, its separate accounts (cell) company, but easing in this market has slowed further growth for this business during 2023.
  • International employee benefit captives are growing in importance and, aside from the savings they may generate, they also help in creating a greater diversified portfolio of risk, including premium revenue that may technically be considered as being third-party risk.
  • In Bermuda, there were an additional 25 new licenses issued during the first seven months of 2023 in the non-captive classes. These included 14 restricted special-purpose insurers and four life (re)insurers.
  • We continue to see increasing numbers of startup platforms based on blockchain (and similar) technologies where the proposition focuses on greater contract standardization and immediate settlements, all of which are automated.
    • The use of such technologies includes such lines as marine cargo, travel cancellation, crypto currency theft — where complex manuscript policies are not necessary.
    • Such solutions are being considered in the captive market, but the trend is in the initial stages of development.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Contacts

Global Head of Captives and Insurance Management Solutions

Jason Palmer
Director, Captive and Insurance Management Services

Paul Bailie
Regional Head of Captive and Insurance Management Solutions, Atlantic & Caribbean

Contact us