Captives can meet demand where traditional market has failed
As the pace of change affecting clients’ exposures has increased, the use of captives as a tool to help manage these risks has as well, according to Owen Williams, manager of XL Catlin’s captive centre of excellence.
Williams said that captives are being used to participate in a range of different exposures that are either relatively new to the clients - such as cyber - or exposures for which the traditional market has not met clients’ expectations, such as non-damage business interruption in a supply chain.
“Captives are a useful tool for such exposures as they allow clients to gather data on their exposures in a central point, opening up potential further markets and capacity to lay off risks in the future or to consolidate risk and achieve diversification,” said Williams.
Williams said that XL Catlin’s portfolio of captive fronting arrangements has grown significantly in the past three years as a result of the significant commitment the group has made to this sector.
“This growth has been seen in the US, in Europe and more recently in Asia. It has not been isolated to particular industries but rather trends can be seen in the types of exposures captives have been used to help manage.”
XL Catlin introduced its Captive Centre of Excellence in September 2017 with the hire of Williams, former head of captive services in the UK for Zurich Insurance, to bolster its captive fronting services.
“This has developed with the implementation of a global captive handbook available to every single XL Catlin underwriter working with captives,” added Williams. “Our clients can therefore benefit from a strong central pool of knowledge which is always available locally with the individuals who best understand those clients and their specific needs.”
However, Williams noted that he is starting to see some polarisation of clients using captives.
“Generally, clients either fully commit to using a captive as part of their risk management strategy and increase the breadth of exposures they manage through their captives, or they move away from captives altogether as often the costs associated may erode the economic benefit of a captive writing just a small singular product,” he explained.