Adaptability, innovation, collaboration: trends in Cayman captives
The Cayman Captive Forum 2024, taking place in Cayman this week, brought together thought leaders from the global insurance industry to discuss pressing issues and transformative trends impacting the captive insurance space.
In a panel moderated by Martin Cooke, director at Hyperion, industry stalwarts including Gigi Norris, US healthcare practice leader at Marsh; John West, senior vice president, captive segment at Guy Carpenter; and Zeb Holt, chief executive designate at Artex, delved into critical topics ranging from economic volatility to cutting-edge analytics.
Norris highlighted the shifting economic dynamics. “We are seeing a very different interest rate environment than we’ve seen in years,” she noted, explaining how higher rates can offset funding costs, enabling captives to fund more efficiently. However, inflation—particularly medical and social inflation—has added complexity to the equation. “People are really thinking hard about loss reserves and pricing in this new economic environment,” she emphasised.
West expanded on the impact of social inflation, describing it as a "new beast" that significantly affects casualty claims. “It’s unpredictable,” he said, citing the role of social media and shifting societal attitudes in shaping liability claims. He warned that traditional risk prediction methods are becoming less reliable, underscoring Norris’s point that “the past is no longer as good at predicting the future as it once was.”
Reinsurance markets are playing an increasingly pivotal role in the captive sector. John West pointed out that reinsurance is becoming more accessible to captives globally, with players like Moody’s and Artemis providing favourable assessments of the sector. However, challenges persist. “Attachment points have moved up, and terms and conditions have become more restrictive,” added Zeb Holt, highlighting pressures on primary carriers. This, he suggested, might drive organisations to explore alternative risk transfer vehicles like captives more thoroughly.
The rise in cyber risk was a focal point of the panel. “Cyber premiums have increased 57% in the last year,” noted West. He explained that the segmentation of cyber risks—distinguishing between standard cyber and silent cyber—is helping the industry refine pricing and risk management strategies.
On emerging risks, Norris highlighted the growing interest in bespoke solutions. “We’ve seen captives getting very specific about unique risks,” she said, mentioning scenarios like cross-border reproductive healthcare claims. These creative approaches illustrate captives’ adaptability in addressing sector-specific challenges.
The integration of advanced analytics and technology in the captive insurance landscape emerged as a transformative trend. Holt discussed how modelling tools are enhancing risk analysis. “We’re using technology to look at historical and fictitious scenarios, allowing better decision-making about programme structure,” he explained.
West added that data-driven tools are revolutionising the sector. “We’re tapping into Guy Carpenter’s vast dataset to develop predictive models,” he said, pointing out the potential of artificial intelligence (AI) to further refine these insights. Echoing this sentiment, Holt referred to the European Insurance and Occupational Pensions Authority’s (EIOPA) call for greater data sharing, suggesting it could “usher in a new era of collaborative risk management.”
Norris also shed light on evolving coverage priorities, stating that “42% of captives cover property and casualty, but we’ve seen an uptick in life, employee benefits, and directors and officers liability (D&O) insurance.” This diversification reflects how captives are adapting to regulatory and market shifts.
For example, Norris cited recent amendments to Delaware corporate law as a driver for increased D&O coverage within captives. She also addressed the challenges of insuring pandemic-related business interruptions, noting that few captives have embraced this due to the "sheer magnitude of the risk relative to assets."
As the session concluded, the panellists agreed that the captive insurance industry is at a pivotal juncture. Volatile economic conditions, emerging risks like climate change and cyber threats, and rapid technological advancements are reshaping the sector. “It’s about tweaking the levers,” West said, summing up the essence of modern risk management, “to find the right balance between retention and transfer.”
The insights from this panel underscored the importance of adaptability, innovation, and collaboration in navigating the complex terrain of captive insurance. As Holt put it, “The challenges we face today require not just better tools but also smarter strategies.”
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