Captives broaden into emerging risks, says Marsh

Captive insurance companies are continuing to expand beyond traditional property risks, with businesses increasingly using them to retain and pre-fund exposures including cyber, political risk, supply chain disruption and trade credit.

Key points:
Captives expand into emerging risks
UK captive regime gains momentum
Structured reinsurance sees growth

That’s the view of Rob Geraghty, managing director and international sales and consulting leader at Marsh. Speaking to FERMA Forum Today he said that Marsh recorded 118 new captive setups globally last year, an increase on the previous year.

Geraghty said the continued flow of new formations, despite a less challenging commercial insurance market, demonstrated “the resilience of captives” and their value “outside of a pure cost-saving vehicle”.

Property remains the largest line of business. However, Geraghty highlighted rapid growth in what he called “growth risks”. Cyber remains the biggest of these, while political risk, supply chain, trade credit, reputational risk, intellectual property, environmental risks, product liability, crime, employee benefits and errors and omissions have also increased significantly.

That growth is becoming more pronounced. The top 10 growth risks represented about $1 billion of premium the previous year, rising to $2 billion last year.

Supply chain risk is one area where interest is increasing. Asked about disruption around the Red Sea and Strait of Hormuz, Geraghty said it was “definitely” an area of growing interest and “a newer area” for captives.

Spotting the gaps

Companies are examining where supply chain exposure actually sits, including business interruption and contingent business interruption, and looking for gaps in protection.

“The more headlines there are, the more it becomes the risk manager’s head, and then it becomes C-suite,” Geraghty said. That can lead to questions over whether the company is protected and whether “the captive should be in there filling” any gaps.

New captives typically begin with one or two lines, often including property, before building experience and expanding. “Very few companies will go in and say, ‘we’re going to take loads of attention and take 10 lines of business,’” Geraghty said.

The UK’s planned captive legislation could provide another opportunity. Geraghty said the consultation was underway and that the proposals appeared positive and broadly comparable with jurisdictions including Guernsey and the Isle of Man.

He singled out the proposed four-to-six-week approval process as “very positive”, adding that the framework was open to most lines of business on a direct basis and some on a reinsurance basis.

Setting the standard

Geraghty expects the initial UK market to comprise UK entities establishing captives. He also identified potential future demand from companies redomiciling, existing groups establishing additional captives and international companies considering the UK as a domicile. Redomiciliation legislation, however, is not currently included in the regulations.

He said France offered a useful example after with its captive legislation in 2023. “They’ve had, I understand, 25 or more brand-new captives set up now,” he said. Alberta in Canada had also seen strong growth after introducing captive legislation.

The UK’s arrival will not necessarily displace established domiciles. Geraghty said Bermuda, Guernsey and the Isle of Man had “very good regulation, reputation, and experience in dealing with captives”.

Reinsurance is another expanding use of captives, with Marsh seeing greater interest in structured reinsurance and customised multi-year solutions.

Captive evolution

Companies are seeking greater certainty for difficult-to-place risks. Some structured arrangements run for three to five years, allowing companies to use the captive as the starting point and then build customised reinsurance around it.

Third-party business is growing too, with warranty and travel insurance were among the areas showing increases, Geraghty said.

He said the shift was particularly visible among companies further along their captive journey. Newer captives tend to establish a small programme and prove the model, while more mature structures can consider additional risks, employee benefits, parametric solutions and more sophisticated reinsurance arrangements.

“Captives are the key to unlocking a lot of the areas”

Geraghty also pointed to the increasing use of captives as “the central point” for insurance risks within a company. Rather than treating it simply as another financing mechanism, companies are increasingly starting with the captive and then determining how the wider insurance market can complement it.

His broader message is that captives are becoming central to corporate risk management. “Captives are the key to unlocking a lot of these areas,” he said, describing them as a tool for unlocking savings, better coverage and reinsurance solutions.

The captive journey, he said, starts with feasibility and one line of business, then develops as companies build experience, surplus and confidence. As companies become more experienced, they can use the captive as “the first to approach” and then build the wider insurance programme around it.

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