2024: A Milestone Year for Captive Insurance Growth

2024 has been a stellar year for captive insurance growth.

There has been a surge in interest and formation of captives over the past 12 months, with forecasts estimating 8,000 captives globally writing $50 billion in premiums in 2024, according to research by Risk Management Advisors.

This growth has been fueled by tough global economic conditions and a hard traditional insurance market, as companies increasingly seek more affordable coverage and greater control over their risks.

While established North American domiciles such as Delaware, Missouri, North and South Carolina, Tennessee, Utah, and Vermont, along with offshore domiciles like Bermuda and the Cayman Islands, have continued to prosper, new domiciles have emerged, most notably France, which introduced captive-specific regulations in 2023.

Anne Marie Towle, CEO of Global Risk and Captive Solutions at Hylant Global Captive Solutions, said, "2024 was a remarkable year for the captive insurance industry, marked by robust growth despite economic concerns such as inflation and uncertainty. Organizations increasingly turned to captives, ranging from simple cell structures to sophisticated multirisk programs, fueled by heightened awareness and the challenges faced by traditional insurers.

"New domicile options, including France and potential legislation in the [United Kingdom], contributed to expansion, alongside creative uses of captive profitability, such as enhancing safety programs and leveraging funds for risk management. Additionally, traditional carriers began viewing captives as strategic partners, reinforcing their value in the insurance ecosystem."

Nick Hentges, CEO of Captive Resources, said, "2024 was an amazing year. We see increasingly more prospects and their brokers understanding and buying into the concept of a group captive.

"Captives used to be an enigma, but that's simply not the case anymore. Most people we talk to have heard of a captive, have some understanding of how it works, and are getting more comfortable with the idea of joining one."

Ryan Basnett, audits director at the South Carolina Department of Insurance, added, "As we close out 2024, we have noticed new formations of captives driven by higher rates in the commercial market and the desire from captive owners to have greater control over their risks. We met with a number of captive managers and owners who either couldn't get coverage in the commercial market or were spending too much for the coverage when they had the capacity to better manage their own risk.

"In particular, protected cell captives, which have been growing in popularity for some time, saw continued increased interest and formation during 2024."

That was a view shared by Prabal Lakhanpal, senior vice president at Spring Consulting Group, who said the market continued to undergo an expansive use of captives. He noted that the biggest trend has been the increased use of captives for employee benefit coverages.

"Employers who set up captives during the peak of the hard market cycle looked to use their captive for much more than just funding deductibles," said Mr. Lakhanpal. "It was exciting to see clients continue to adapt captives to fit the unique requirements of their own organizations."

Single-Parent Growth

Among the biggest growth areas, said Steve McElhiney, head of captive and alternative risk transfer solutions at Augment Risk, was single-parent captives. In particular, he said that growth and penetration had been prevalent in the United States, Canada, the United Kingdom, the European Union, Asia, and Mexico.

"While the property market over the past 5 years has been a catalyst, captive owners are seeing captives as a compelling tool to improve the total cost of risk over time, as well as a means to access reinsurance, irrespective of market cycles," said Mr. McElhiney. "Many insureds are requesting their broker partners present captive alternatives during renewal periods.

"Captives continue to see growth with middle-market insureds and public entities and remain a long-standing tool for large corporates that are also broadening the utilization of existing captives."

As regards lines of business, George Belokas, chairperson for the Self-Insurance Institute of America's captive insurance committee and president of GPW and Associates, said that property was one of the most in demand, particularly given the rise in the commercial market.

"Folks are looking for alternative solutions to just buying the traditional policy in the commercial market," he said. "As a result, they are looking for creative ways to use captives to take additional amounts of that property risk."

Using captives to cover healthcare risks is another key focus area, said Jeff Fitzgerald, board member of the Self-Insurance Institute of America and managing director at SRS Benefit Partners. Mr. Fitzgerald said, "Interest is coming from agencies looking to consolidate and develop a more cohesive captive strategy, from captive members seeking greater transparency and claims control, and from stand-alone self-funded groups."

Innovation and Regulation

The continued significant growth of captive formation and use in 2024 also reflected captives' innovative and entrepreneurial nature, according to Steve Bauman, head of global programs and captive practice North America at AXA XL. He noted that the breadth of risks being covered by captives continued to expand in 2024, thus strengthening their application as enterprise risk management vehicles for corporations.

Mr. Bauman emphasized that the ascension of the State of Vermont and the early success of France as captive domiciles were telling signs of the global significance of captive insurance and even stronger encouragement for the future.

Another key development in 2024, said Michael Maglaras, principal at Michael Maglaras & Company, was the continued pressure by the US Internal Revenue Service (IRS) to investigate the fraudulent use of captive insurance companies formed under Section 831(b) of the Internal Revenue Code.

"In my view, what the Feds have done in 2024 is help us clean up our act in our own industry ... abuses of a basically good captive structure that never should have happened to begin with," Mr. Maglaras said. "I hope the challenges to fraudulent captive insurance transactions continue for the benefit of the entire industry."

Globally, Wesley Sierk III, a managing director at Risk Management Advisors, noted that there has been a continued push toward regulatory harmonization. He added that some regions have also adopted best practices, enhancing transparency and accountability in captive operations.

"Regulatory scrutiny around the tax implications of captives continues to evolve," said Mr. Sierk III. "More jurisdictions are amending tax codes to encourage captives' formation or tighten regulations on their taxation. Captives must stay proactive and informed about evolving tax landscapes to optimize their structures.

"With the rise of […] regulations [focused on environmental, social, and governance], captives must demonstrate sustainable practices. This includes integrating environmental risk management strategies to fulfill regulatory requirements and enhance the organization's reputation.

"As data privacy laws become more stringent, captives must ensure full compliance. This involves reviewing policies and procedures to align with regulations like [General Data Protection Regulation] in Europe or [California Consumer Privacy Act] in the United States."

Domicile Trends

In terms of domiciles, Sam Komo, Missouri captive insurance manager, said that Missouri's ongoing trends in 2024 included the dissolution of inactive captives, increased coverages for current pure captives, and expansion in the reinsurance market.

"While our final number of active captives will sit at 53, gross written premiums are projected to increase again from our 2024 increase of 148 percent," Mr. Komo said. "This translates into a winning year for our captive companies and is a tribute to our success."

Ellen Sue Bernards, board member of the Missouri Captive Insurance Association, added, "Despite an accumulation of losses from hurricanes and convective storms, the commercial property market remained competitive in 2024. As a result, the utilization of captives for property remained relatively consistent with prior years.

"As complex litigation threats and social inflation continue to increase, we are seeing captives contributing to third-party liability capacity alongside the commercial markets, and we expect to see continued growth going into 2025."

As far as North Carolina is concerned, Joe Rosenberger, chief captive analyst at the North Carolina Department of Insurance's captive insurance companies division, said that the state continued to experience growth in its licensed captives and cell structures throughout 2024.

"Increased IRS scrutiny of micro-captives and the resulting flurry of IRS court cases in early 2024 may have impacted the number of dissolution requests received," Mr. Rosenberger said. "However, in other instances, captive owners have found new and unique ways to utilize their existing captives.

"Some trends that we noted during the year include more business owners requesting business plan changes to expand coverages offered by an existing captive or forming new captive insurers to provide coverage for emerging risks such as medical stop-loss coverage and property liability coverage."

Sandy Bigglestone, acting commissioner of the Department of Financial Regulation, noted that the challenging commercial marketplace continued to pressure businesses and impacted the growth of the alternative/captive marketplace. Despite this, she said Vermont had a successful year.

"Vermont had another successful legislative session, resulting in valuable updates to the captive statutes," said Ms. Bigglestone. "In terms of new captive licenses, 2024 is another notable year among our top 10 highest growth years."

Captive Insurance Companies Association President Dan Towle summed up, "The golden age of the captive insurance industry continues. The sustained period of growth and prosperity has been extraordinary, with new captives being formed and existing captives expanding.

"Companies utilizing captives for risk management purposes continue to thrive and have been doing so for a prolonged period. This is occurring in North America, Europe, and other parts of the world.

"France's establishment as a captive domicile is the most significant international development in 2024. Its success over the past 2 years and business-friendly approach have demonstrated just how fertile the European market is for future growth. This has clearly captured the attention of other nations considering becoming captive domiciles.

"According to Ernst & Young's 2024 Global Insurance Outlook Report, captives now represent nearly 25 percent of the overall commercial insurance market, having diverted hundreds of billions of dollars in premiums from traditional channels over the past decade. This is a huge milestone for our industry and further solidifies that no one can credibly refer to the captive industry as the alternative risk market.

"Captive insurance has become a statistically significant part of the overall commercial insurance market. While this growth brings opportunities, it also attracts increased attention to the captive industry."