7 March 2023Analysis

Watch inflation impact on short-tail lines, panel warns

Inflation was identified as an ongoing hot topic for the captive insurance market, as the industry has had to deal with a range of issues at the start of the year, a panel at CICA 2023 said.

In a session discussing the hot topics for the industry, the rise in inflation was highlighted due to the unexpected nature of its re-emergence as a major economic issue after years of being a minor one. Increasing inflation has been attributed to the COVID-19 pandemic and its aftermath, and captive owners will need to see how it impacts short-tail lines and other aspects of their business, the panel said. Some of those owners will have their assumptions about their captive business tested, they added.

The panel was made up of Paul Shimomoto, president of the Hawaii Captive Insurance Council, Matt Takamine, executive managing director and captive practice leader at Brown & Brown, Kyle Hales, principal and consulting actuary at Perr & Knight, and David Beyer, director risk management at Alaska Airlines.

Further hot topics included developments around domicile. For example, while Washington State is still widely regarded as being hostile to captives, there appears to be some signs of a thaw in relations. However, the panel said the exact nature of this remains unclear.

More positively, there are now signs that Japan is finally interested in captives after years of slow development, the panel said. Historically captive development was prevented by issues surrounding Japanese culture, tax haven status and keiretsu (interlocking directorships between companies and commercial insurers).

Further emerging and developing coverages of particular interest to captives include cannabis, access to cryptocurrency accounts, cyber, D&O coverage and an increase in protected cell activity, the panel concluded.