Captive insurance vehicles are rapidly growing in popularity as risk managers seek alternative ways to finance emerging risks their organisations now face, according to a report by Marsh.
The 2018 Captive Landscape report found that cumulative growth in the number of Marsh-managed captives writing cyber liability rose by 240 percent from 2012 to 2017, while in the same period, the number of captives insuring employee benefits across multiple geographies grew by 550 percent.
Marsh also reported an 83 percent increase from 2012-2017 in the number of captives writing terrorism coverage backed by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA).
Many organisations are examining their captives to see if they can take advantage of TRIPRA, which can also be used to cover cyber-terrorism perils in the US.
According to Marsh’s report, 60 percent of captive owners surveyed maintain their captive as a formal funding vehicle to insure risks that the parent company has decided to self-assume. A further 42 percent said it was to provide access to the reinsurance market.
The report noted strong year-over-year growth in captives in the Asia Pacific region since 2012.
Last year, Marsh recorded a 24 percent increase in the number of Marsh-managed captives in Asia Pacific, largely driven by parent companies based in Japan, China, Hong Kong, and Singapore.
Marsh stated: “Consolidation due to merger and acquisition activity is partially behind the reductions and flat growth in the number of captives in North America and Europe.”
The report also found that financial institutions continue to lead the way in both number of captives and premium volume.
It stated, however, that the increasing complexity of risk, emerging risks, and an uptick in mergers and acquisitions have led other industries to adopt or expand the use of captives.
These include life sciences, communications media and technology, as well as retail transportation and power and utility.
The report examines 1,100 captives managed by Marsh Captive Solutions globally.
Last year, the 2017 report found the number of owners using captives for cyber liability programmes increased by nearly 20 percent in 2016, representing the fastest growing non-traditional risk in Marsh-managed captives.
It also found extra-large captives made up only 20 percent of the total in 2016, due to consolidation within certain industries, such as healthcare.
Commenting on the 2018 report, Ellen Charnley, president of Marsh Captive Solutions, said: “As the global risk landscape becomes more complex, organisations are increasingly using captives to help accelerate their corporate objectives, reduce volatility, protect human capital, and boost financial certainty.”
She added: “Captives offer unrivalled flexibility in financing emerging and high-severity risks, such as cyber risks, terrorism, and employee benefits. We expect this growth to continue, as more organisations adopt innovative new ways of placing captives at the core of their risk management strategies.”
