Marsh Finds Continued Increase of Third-party Coverage in Captives

Companies in the financial institutions industry have by far the highest percentage of captives of any industry according to a new Marsh report that looked at trends among 1,100 captives managed by Marsh Captive Solutions globally during 2018.

According to The Captive Landscape report, June 2019, nearly 23 percent of Marsh-managed financial institutions now have captives, which generate more than $21 billion in gross premiums.

Those figures far surpass the health care industry, where 12 percent of organizations sponsor captives, with those captives producing $2.1 billion in gross premiums, and the manufacturing industry, where 6.29 percent of companies offer captives, with the captives producing nearly $893 million in gross premiums.

On the other hand, less than 1 percent of organizations in the hospitality and gaming industry; the sports, entertainment, and event industry; and the forestry and integrated wood products industry sponsor captives.

Continuing a long-standing trend, the percentage of captives that are onshore continues to rise. Last year, for example, 59 percent of captives Marsh managed were onshore, up from 56 percent in 2018. In all, Marsh managed over 1,100 captives in 2018, making it, by far, the world's largest captive manager.

While most captives are used to cover their parents' risks, 22 percent of captives Marsh manages offered some type of third-party coverage, representing a year-over-year increase of 12 percent and a 62 percent increase over the last 5 years.

Offering third-party coverage, such as to the captive parent's customers, "can strengthen those relationships and bring additional premium to the captive," the Marsh report noted.

While captives typically are used to fund property and casualty risks, more parents are using their captives to fund employee benefit risks. For example, there has been a 243 percent increase over the last 5 years in the number of Marsh-managed captives funding multinational benefits and a 36 percent increase in the number of Marsh-managed captives funding US employee benefit risks.

Likewise, Marsh-managed captives wrote more than $3 billion of net premiums for extended warranty coverage, which has increased 22 percent over the last 5 years.

The report also found that while more captives are funding cyber risks, the annual growth rate is slowing.

For example, last year, the number of captives writing coverage for cyber risks increased 15 percent. While that is up from 10 percent in 2017, it is sharply lower than the 30 percent increase in 2015.

The report also revealed that among regions where captive parents are based, growth over the past 5 years has been robust: Asia-Pacific, up 24 percent; Middle East, up 33 percent; Caribbean, up 18 percent; and Latin America, up 17 percent.

Furthermore, the report said, emerging technologies like blockchain represent opportunities for captives to not only insure new risks but to also reduce operating expenses by facilitating the distribution of policy information, proof of insurance, and claims payment.