Insurance Marketplace Realities 2023 Spring Update – Captives

Captives have been undergoing a resurgence in interest over the last two to three years, supported by an increase in formations during 2022 particularly. There is continuing involvement in specialty lines and the creation of diverse portfolios of risk rather than in a monoline approach.

• Total captives worldwide rose from 6,074 in 2021 to 6,191 in 2022 — an increase of almost 2% (Business Insurance Captive Managers and Domiciles March 2023).
• 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

• All but one of the 10 largest U.S. captive domiciles reported an increased number of licensed captives in 2022.
• Reports of captive formations in the first quarter of 2023 remain strong.
• There is more interest in property captive programs given the difficulties in the property commercial market.
• Mature captives with sufficient capital and surplus continue to be further utilized 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.
• Captive investment portfolios are being monitored and re-evaluated due to unrealized losses and their impact on capital and surplus. Additionally, with increased yields on investment portfolios, sensitivities are heightened around maintaining an insurance vehicle rather than an investment vehicle.

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 December 2022, there were 18 new captive licenses issued in Bermuda compared to eight in the prior year and six in 2020. Cayman saw 33 new licenses issued during 2022, compared to 37 in 2021 and 32 in 2020.
• 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.
• Cayman has a growing number of reinsurers being formed writing diverse risks. Outside of regular captive business there is a particular focus on the formation of life and annuity reinsurance entities. During 2022, the 670 international insurance companies of all types in Cayman wrote $23 billion in premium and ended the year with a total asset value of $74 billion.
• While Bermuda’s core business remains focused on large and complex global programs, growth of segregated accounts (cell) business remains very strong, targeting somewhat smaller clients and solutions for individual programs as opposed to portfolios of risk.
• WTW has handled some Side A D&O business on a funded basis through Meridian Insurance Limited, its Separate Accounts (cell) company, but easing in this market may slow further growth.
• International employee benefit captives continue to grow in importance and aside from the savings they may generate, they can help in creating a greater diversified portfolio view of risk.
• In Bermuda, there were an additional 62 new licenses issued during 2022 in the non-captive classes. These included 22 restricted special purpose insurers and nine Class E life insurers. We are also seeing 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

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Peter Carter

Head of Climate Practice &
Head of Captive and Insurance Management Solutions,
WTW

email Email phone +44 20 3124 6300

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Jason Palmer

Director, Captive and Insurance Management Services

email Email phone +1 802 264 9555

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Paul Bailie

Head of Atlantic and Caribbean Captive and Insurance Management Solutions, WTW

email Email phone +1 441 707 0692

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