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Survey Report

Insurance Marketplace Realities 2023 - Captive insurance

December 1, 2022

We are seeing additional consideration given to emerging risks and risks not previously financed through captives.
Captive and insurance management solutions
N/A

Captives continue to increase involvement in specialty lines of business beyond the traditional property and primary casualty areas. This is accompanied by greater awareness of the benefits of building diverse portfolios of risk rather than a monoline approach.

  • This shift in captive deployment is subtle but definite in many instances. Enhanced 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.
    • In some cases, captives may be able to cover emerging risks before traditional insurance markets have an 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

  • Early new captive formation reports suggest a strong 2022 across many domiciles, all industries, and many lines of insurance.
  • For example, according to the Vermont Department of Financial Regulation, the State of Vermont is reporting 34 new captive formations year to date compared to 38 over the same period last year.
  • In addition, there have been 32 cells approved so far this year compared with 20 last year in Vermont.
  • Captives that built capital and surplus during the extended soft insurance market are being further optimized to support new lines of insurance and new offerings of limits to combat the effects of the lingering hard insurance market.
  • Captive participation in cyber placements is becoming more commonplace, with captives participating in both the primary layer and in excess layer positions.
  • Employing captives for Side A D&O coverage has become a discussion area following the amendment to the Delaware corporate statute; however, the same considerations remain:
    • Can the assets of a captive be segregated from the parent company?
    • Concerns around the independence of claim handling procedures
    • Circularity of funding considerations

Americas offshore

  • The key Atlantic and Caribbean domiciles of Bermuda and the Cayman Islands have seen renewed growth in the number of new captive insurance licenses issued.
  • Through August 2022, there have been 14 new licenses issued in Bermuda compared to eight in the prior year and six in 2020, according to the Bermuda Monetary Authority. The Cayman Islands Monetary Authority has seen 28 new captive licenses issued so far this year.
  • New activity remains largely focused on business from North America, with some additional activity from Latin America, while interest from the Asia Pacific region has increased.
  • Cayman continues to see new activity in the healthcare sector which represents approximately 40% of the number of licensees, with a growing number of reinsurers being formed writing diverse risks. There is a particular focus on the formation of life and annuity reinsurance entities.
  • Bermuda activity remains centered on larger, more complex global programs at one end of the scale, but also segregated accounts (cell) business at the other where we are seeing very strong growth. This has included Side A D&O business on a funded basis, which in some cases is a viable alternative.
  • International employee benefits captives are gaining some traction.
  • More generally in commercial insurance in Bermuda, there are 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 early 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