25 February 2019Analysis

Steady increase in the number of energy companies using captives: Aon

The energy sector has seen an increased use of captive insurance over the last 5 years, as it continues to be a key part of companies' risk management strategies, according to an Aon report.

Aon’s report, 'Supporting The Energy Industry Through Captive Insurance Programs', noted that while large organisations have been the most prevalent users of captives, there has been a steady increase in the formation and use of captives by clients with revenues under $10 billion.

This is highlighted by the fact that only 28 percent of Aon-managed captives had revenues under $10 billion, whereas in 2018 that percentage went up to 40 percent.

Mark Owen, senior vice president Aon's Commercial Risk Solutions, expects the use of captives in the energy sector to continue grow “as an integral part of energy companies’ risk management strategies across the spectrum.”

"The regulatory and market landscape continues to evolve which gives rise to the need for a steady focus on control of risk and management of the total cost of risk,” he said.  “This has to date seen a steady progression in companies seeking onshore options in the US.”

Aon currently manages around 65 energy captives with collective gross written premiums of over $1.7 billion.

About 52 percent of these energy clients are in the field of oil and gas extraction, 20 percent in petroleum refining, and the remaining are in industries relating to mining and other natural resources.

The Aon report suggested there had been great interest in new captive formations in North America.

Around 44 percent of Aon-managed energy captives are owned or controlled by parent companies in North America and 30 percent are located in Europe. In both these regions, companies with revenues under $10 billion account for up 47 percent of total captive formations with average captive gross written premium of $7 million.