Captive boom has big presence at Airmic Conference

Published on Wed, 11/08/2021 - 13:30

The formation of new captive insurance companies, as well as the increased utilisation of existing captives, by Airmic members has ensured the topic is high on the agenda at the October conference.

Airmic’s captive ambassador Richard Cutcher will moderate a seminar at 9.45am on Wednesday, 6 October discussing how captives are changing the conversation for insurance buyers.

Captives are private insurance companies, owned by the insured, used to facilitate a sophisticated and long-term risk financing strategy. They have been commonplace among large corporates for more than 40 years, but the hard insurance market has increased their relevance across more sectors and into the middle market.

“Captives have leapt up the corporate agenda due to various factors including hardening of insurance markets, emergence of new risks and global uncertainty driven by the pandemic,” said Peter Child, managing director of Strategic Risk Solutions in Guernsey.

Mike Johns, director at Willis Towers Watson in Guernsey, agreed that rising rates, as well as restrictions in wordings and a drop in capacity had led to more captives being formed and existing ones being further utilised.

Johns said: “These combined factors have led to corporate purchasers looking more intently at the insurance policies that they purchase and their own risk finance strategy, seeking to increase their retention levels to achieve a more cost-effective method to finance their risk.”

As well as representation from Guernsey, the seminar panellists will include Owen Williams, global programmes and captive regional director, UK, Nordics & Ireland at AXA XL, Karen Jenner, IPT client engagement director at TMF Group, and Barry Beard, director of European global services & complex multinational at Chubb.

Williams (pictured) said the rapid development of emerging risks overtaking those historically perceived to be the greatest threat to businesses has changed the conversation and strategy of insurance buyers.

“These emerging risks - by definition - often lack data, leading to a greater hesitancy on behalf of the traditional insurance market to respond,” he said. “The use of a captive has long been seen as a useful tool to collect businesses data on any given risk, and to consolidate claims and exposure information in one location.

“This enables a corporate to understand and model such risks, generally allowing better-informed decisions on what approach to then take in managing the risks. With the risk landscape changing rapidly, now is the time to maximise the usage of tools such as a captive to better understand these emerging risks and plan for the future in a resilient and sustainable manner.”

With regards to which lines of insurance are increasingly going into captives or driving new formations, Child and Williams both highlighted professional indemnity and directors & officers insurance.

“I’m aware of a lot of cells dealing with professional indemnity (E&O) risks, some dealing with aspects of D&O cover, as well as captives providing cross class cover to corporate parents incorporating most major property and liability lines,” Child added.

Williams explained that most captive strategies developed over the past 24 months had been in response to market dynamics.

“In general terms, this would include directors and officers, more so with cells, professional indemnity and large cat-exposed property cover; however, many clients have placements with exposures that are very particular to their business and their needs,” Williams said. “If these clients are impacted by market dynamics outside of those referenced above, captives can play a significant role in helping to manage them through a renewal cycle.”

For more information on the Airmic Conference, to be held in Brighton on 5 – 6th October visit the event website here.

The health, safety and security of all who attend the Airmic Conference 2021 is our top priority. The Conference has been planned and assessed in line with UK government guidance for COVID-19 for “Events and attractions” in England. This guidance may be subject to change from time to time and we will continue to encompass these changes in our arrangements as necessary.