Artex: Captives become central to enterprise risk financing

Captive insurance is increasingly being treated as a strategic component of corporate risk, according to Mike Matthews, commercial director, EMEA at Artex Risk Solutions.

Key Points:
Captives are becoming more strategic
Data is reshaping risk retention
Growth must be evidence-based

“The biggest driver is still control.”

Speaking to FERMA Forum Today, Matthews said that “captives are becoming more strategic”, noting that conversations which five or 10 years ago centred on hard market conditions and premium savings are now more likely to focus on “capital efficiency, volatility management, emerging risks” and long-term resilience.

A key part of that change is data and analytics. Clients are making more informed decisions about risk retention, Matthews said, while boards are more comfortable retaining risk because they have better data.

“The biggest driver is still control,” Matthews said. Although market pricing remains relevant, companies are increasingly using captives as part of a broader risk financing strategy. They are seeking greater certainty over insurance costs, reduced earnings volatility and more control over how risks are financed.

Captives can form part of the answer, but Matthews said the discussion increasingly moves beyond insurance. “The discussion often starts with an insurance question, but it then quickly becomes a capital management discussion.”

That change is influencing how companies decide which risks to retain. Artex has invested heavily in actuarial capability, he said, enabling clients to make more informed decisions around retention levels, capital requirements and programme design. The emphasis is on evidence rather than market sentiment.

“Present the captive as a business tool, rather than an insurance tool.”

Financing difficult risks

Captives are also evolving beyond traditional property and casualty risks as organisations face new exposures. Cyber is one example, with clients using captives for deductibles, exclusions or specific layers. Supply chain risk is another area where traditional insurance may not fully align with the exposure.

Matthews stressed that captives are not intended simply to absorb every difficult-to-insure risk. Successful programmes are built through careful analysis of the exposure, data and retention levels. “The conversation is increasingly about risk and risks that are difficult to finance, rather than simply risks that are difficult to insure.”

This distinction matters when risk managers seek board or CFO approval. Matthews argued that captives can be difficult to value if judged only through annual premium savings. Instead, decision-makers are interested in capital efficiency, predictability, cash flow, earnings stability and the long-term cost of risk.

“What works best is that when risk managers present the captive as a business tool, rather than an insurance tool,” he said. Actuarial analysis can demonstrate a range of outcomes, including downside scenarios. Boards, he added, can then see both opportunity and risk quantified in financial terms.

Strategic workshops can bring together risk, finance, legal and tax stakeholders to establish what the captive is intended to achieve and test those priorities against available data. “The CFO isn’t looking for a captive story,” Matthews said. “They’re more looking at a capital story.”

Regulation and domicile selection are also becoming more sophisticated. Matthews said the direction of travel was positive, with regulators increasingly recognising that captives differ from commercial insurers and reinsurers. Proportionality is important, but he cautioned that a more proportionate regime should not be interpreted as a lighter-touch approach. Governance, substance and risk management remain central.

Matthews said selection is increasingly based on a combination of regulation, operational requirements, access to expertise and tax considerations. Interest in the proposed UK regime, alongside established European domiciles, is broadening the conversation, while clients are focusing more on long-term fit than simply the lowest capital requirement or operational cost.

Looking ahead, Matthews sees an opportunity for captives to become more central to enterprise risk financing. Areas attracting interest include cyber, employee benefits, supply chain and climate-related risks, alongside broader multi-year, multi-line strategies.

He also sees greater strategic interaction between captives and reinsurance markets. Rather than simply reinsuring the net retained line, organisations can use specialist or facultative reinsurance behind the captive, giving them greater control and flexibility in responding to market conditions.

Growth needs evidence

The principal danger, however, is moving too quickly. Organisations can become enthusiastic about entering new risks before having sufficient data, governance or capital frameworks in place. Matthews said successful captive owners tend to be methodical: testing ideas, analysing the exposure, building experience and expanding gradually.

He pointed to incubation as one way of developing understanding where traditional markets may not fully understand an emerging risk or may price it inappropriately. A captive can provide experience of pricing, claims and risk characteristics before the commercial market is brought back into the conversation.

Ultimately, Matthews sees the opportunity in making captives more strategic, while the risk lies in becoming “more ambitious than the data supports”. For him, actuarial, underwriting and capital management expertise should ensure expansion is evidence-based rather than driven by enthusiasm alone. Captives are increasingly becoming part of how organisations manage risk, capital and resilience together across the business over time too.

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