General Insurance Article - Surge of captive insurance company formations

The surge of captive insurance company formations gained greater momentum in 2020 as more organizations sought to balance their insurance purchasing with increased risk retention due to difficult insurance market conditions, according to Marsh.

 In its 2021 Captive Landscape Report, published today, Marsh reveals that it helped clients form more than 100 captives of all types around the world in 2020, almost double the historic rate of annual formations. Protected or segregated cell companies saw the largest increase in new formations, with a 53% year-over-year rise.

 Marsh notes in the report that cell companies can be easier and quicker to set up than regular captive insurance companies, which may have helped their steep growth during the pandemic. Significant price increases and capacity shortages in the global directors and officers liability (D&O) market also contributed, as a number of organizations formed cell companies in 2020 to secure D&O coverage. Overall, D&O premiums written by Marsh managed captives increased by 50% in 2020.

 “Captives enable organizations of all sizes to better manage their costs and take greater control of their insurance programs, which is making them a hugely popular risk financing mechanism in today’s challenging insurance market,” said Ellen Charnley, President of Marsh Captive Solutions. “We continue to see growth in 2021 in nearly all captive domiciles around the world from existing captives as well as new formations. We are on track to form a significant number of captives this year.”

 Ms. Charnley noted that in 2021, Marsh, in particular, is seeing significant interest from organizations wanting to self-insure cyber exposures using a captive vehicle. “The growth in non-traditional risks, such as cyber -- which was not written by captives a decade ago -- is another sign of the value they provide in helping firms solve challenges and support strategic objectives.”

 According to the report, Marsh saw a 13% increase in number of captives writing cyber risk in 2020, and a 54% increase in net premiums written in this class.

 The report benchmarks more than 1,300 Marsh-managed captives around the world that agree to share their data on an anonymous and aggregated basis.


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