Captives remain resilient: strategic drivers sustain growth amid shifting insurance market

Captive International  takes a look at what’s driving the North American captive insurance market in the second half of 2025.

Despite signs of softening in parts of the commercial insurance market, the captive insurance sector remains robust, driven by both strategic risk management goals and the enduring volatility of specific risk lines. Industry experts and regulators agree; rather than seeing a pullback in formations, the captive landscape is evolving – adapting to new realities and becoming an integral tool for companies seeking resilience in uncertain times.

Peter Carter, head of climate practice and head of captive and insurance management solutions at WTW, and Ed Koral, North America captive consulting lead at WTW, observe that although some areas of commercial insurance are stabilising in terms of price and availability, captives are continuing to gain traction. “Although some risk lines are showing improved pricing, casualty remains challenging, providing scope for new formations to return a positive business case,” they note.

Crucially, Carter and Koral argue that soft market cycles can actually create favourable conditions for establishing captives. “Soft insurance market cycles can provide a good environment to set up new captives, building a war chest of surplus capital to be ready for the next hard market cycle.”

Captives as a sign of maturity, not just a reaction

Importantly, not all captive formations are direct reactions to market pricing pressures. Many companies pursue captives as part of a broader evolution in their approach to risk. “Captives are formed as part of a natural progression toward more sophistication in risk financing strategies as the parent company moves along a ‘growth and maturity curve,’” says Carter.

This shift reflects a philosophical change; moving away from full reliance on commercial risk transfer and toward strategic deployment of insurance, where companies retain more risk and use insurance at higher attachment points. For many, the turbulence of the recent hard market was a wake-up call – highlighting vulnerabilities in traditional risk transfer models and prompting deeper thinking about risk resilience.

Steady demand for feasibility studies and licensing

Given this strategic shift, interest in captive formation has remained steady – even as some commercial premiums ease. “About the same”, answered Carter and Koral when asked if WTW is seeing changes in feasibility study or licensure activity.

However, Sandy Bigglestone, deputy commissioner of the captive insurance division at the Vermont Department of Financial Regulation said: “There has been an increase for sure,” she confirmed. “Current licensing totals to date match what Vermont licensed in all of 2024.”

Vermont’s strong growth in new formations signals enduring demand for captive structures. “The last five to six years have been in Vermont’s top ten highest growth years for new formations,” Bigglestone added, placing today’s momentum in historical context alongside previous surges after major industry disruptions, such as the medical malpractice crisis of the 1980s and the aftermath of 9/11.

The role of catastrophic risk and market uncertainty

While certain areas, such as commercial property insurance, have seen some rate relief, Bigglestone warns that broader underwriting conditions remain tight. “Despite rate relief, commercial insurance companies are shifting their underwriting strategies and applying more scrutiny to certain risks since there is still much uncertainty about catastrophic weather events on a global scale.”

In this environment, captives become powerful tools. “Many of the new and prospective companies find value in financing their higher deductible in a captive, and some are spreading risk in higher layers by accessing the reinsurance marketplace,” she explained.

Indeed, property has long been a key line for Vermont-based captives, and it continues to be a driver today – especially for risks such as flood, windstorm and terrorism, where self-insurance strategies can integrate effectively with captive programmes.

“Captives can be a plug and play for negotiating in the commercial marketplace.”

Small and mid-sized enterprises embrace captive models

One of the notable trends emerging is the broader accessibility of captives to small and mid-sized enterprises (SMEs). Despite assumptions that captives are only for large corporates, both WTW and Vermont report growing interest among smaller firms, particularly through cell captives and group captive structures.

WTW’s Carter and Koral note that “clients of all sizes are not thinking of insurance purchases as an automatic given. Many are now looking at their retained risks on a portfolio-wide basis”. By viewing their risks holistically, SMEs can take advantage of diversification benefits and retain risk more aggressively – without exceeding their overall appetite.

“Captives are formed as part of a natural progression toward more sophistication in risk financing.”

Bigglestone agreed: “The same value proposition of captive utilisation for a small or mid-size company and a large company exists, but feasibility is a determining factor.” Vermont’s protected cell structures provide a flexible, cost-effective option for SMEs to access captive benefits without the administrative burden of a standalone entity.

Strategic risk management takes the lead

A recurring theme across all stakeholders is the shift from reactive to proactive captive formation. While cost savings are still possible – sometimes immediately – strategic thinking is now the primary driver. “It is often said that ‘luck favours the prepared person’,” noted Carter and Koral. “Strategic thinking about risk management goals will ultimately achieve both long-term and immediate cost savings.”

Bigglestone concurred, observing that captives serve as “a risk sophistication accelerator” for many companies. Not only do they offer a more structured method for managing and financing risk, but they also provide leverage in negotiations with commercial insurers. “Captives can be a plug and play for negotiating in the commercial marketplace,” she added.

Looking ahead: stability in an unpredictable market

Although some lines in the commercial market are easing, today’s environment is best characterised not as a classic soft market, but rather an unpredictable one. As insurers adjust strategies and protect their margins, companies are doing the same – with captives playing a central role.

As Bigglestone puts it: “What we are experiencing today can be best described as the uncertain, or unpredictable, market cycle. As much as commercial insurers are looking to protect profitability and stabilise the market, corporations are looking to protect the same in their individualised risk management strategies.”

With both regulatory support and strategic purpose behind them, captives remain a cornerstone of resilient enterprise risk management – ready to weather whatever market cycles lie ahead.

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