Insurance Marketplace Realities 2024 Spring Update – Captives

Captives have been undergoing somewhat of a resurgence in interest over the last three to four years, evidenced by increases in formations since 2021. As reported during 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 2023 Vermont surpassed Bermuda and Cayman to become the largest captive domicile in the world.
• Reports of new captive formations in 2023 remained strong across most U.S. domiciles.
• Overall growth is being offset by the continued dissolution of captives taking the 831(b)-tax election.
• Property coverage is top of mind for many current and prospective captive owners. This is driven by the price and retention escalation by the commercial property insurance market.
• Mature captives with sufficient capital and surplus continue to use 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.
• We see a resurgence of terrorism captives taking advantage of better pricing in the commercial reinsurance market over standalone coverage directly placed or imbedded within commercial 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 December 2023, there were 16 new captive licenses issued in Bermuda compared to 18 in the prior full year, while the total number of new licenses issued for all types of insurer climbed to 72. Cayman saw 40 new licenses issued through December 31, 2023, compared to 33 licenses issued during 2022.
• There is significant activity among insurance companies setting up internal captive reinsurers as key elements in their capital management efforts and to access reinsurance more efficiently.
• New activity is still primarily focused on business from North America, but there is a considerable interest globally with these domiciles tending to be favored for captives involved in large and complex global programs. WTW has seen activity from the U.K., Europe, Latin America and Asia.
• Outside of captive business there remains extensive activity relating to the formation of life and annuity reinsurance entities, both in Bermuda and Cayman.
• Segregated account (cell) business in Bermuda is extremely active at present. The Bermuda Monetary Authority is planning to introduce some amendments to the regulation of this business, so this may have an operational impact in 2025 and beyond.
• WTW manages some Side A D&O business on a funded basis through Meridian Insurance Limited, its cell company and, although growth in this business slowed in late 2023, it has seen renewed interest from entities that are in or adjacent to the digital asset space and who are still stressed in commercial markets.
• 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.

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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