Further expansion in the Cayman captive market
Bill Murphy (pictured) of Arch Insurance explains the firm’s position in the increasingly dynamic Cayman captive insurance market.
Arch Insurance, a global specialty insurer and reinsurer, has steadily increased its footprint in the Cayman Islands’ captive insurance market over recent years. Arch’s Cayman operations serve as a fronting carrier and reinsurer for group captives in property and casualty sectors, with a focus on addressing the diverse needs of captive managers.
In the Cayman Islands, Arch acts as a fronting carrier and a reinsurer, specialising in property and casualty group captive business. Arch provides fronting services by issuing guaranteed cost policies to each member of the group captive, meaning that the policyholder pays a fixed premium, with Arch assuming responsibility for managing claims and financial reporting on behalf of the captive.
This model allows Arch to support a wide range of captive managers who manage multiple group captives, whether they are homogeneous—for example, captives exclusively for construction or transportation companies—or heterogeneous, with clients from diverse industries.
Arch’s ideal client is a programme or captive manager with multiple group captives that require fronting and reinsurance solutions. Arch’s role extends beyond policy issuance and risk assumption; the company also provides essential back-office services to support captives, including claims oversight, premium audits, finance support, and policy management.
This comprehensive suite of services has positioned Arch as a one-stop solution for captive managers in Cayman, enabling clients to rely on Arch’s expertise for operational support and risk management.
“Growth has largely come from organic expansion within existing group captives rather than through acquiring new captives.” Bill Murphy
Growth and expansion
In the past five years, Arch’s presence in the Cayman captive insurance market has more than doubled. Arch has 18 group captives domiciled in Cayman, representing more than $650 million in gross written premium (GWP)—a significant increase from five years ago.
Cayman accounts for half of Arch’s group captive portfolio and more than 60 percent of its total GWP. The company’s largest group captives are based in Cayman, highlighting the island’s importance within Arch’s broader captive insurance strategy.
This growth has largely come from organic expansion within existing group captives rather than through acquiring new captives. As the casualty insurance market tightens, many businesses, particularly well-managed firms, are turning to group captives to secure more predictable and affordable coverage.
While Arch continues to add new group captives, its primary growth driver remains the organic expansion of existing groups, fuelled by the increasing need for alternative risk transfer solutions in the hardening insurance market.
Sources of growth
Arch’s growth within the Cayman market is notable across homogeneous and heterogeneous captives. Homogeneous captives focus on specific industries, such as construction and transportation, where members share similar risk profiles and benefit from targeted risk management strategies. In recent years, Arch has seen robust growth in these homogeneous groups, as companies in industries with unique risk profiles seek more tailored insurance solutions than the conventional market can offer.
Heterogeneous captives, on the other hand, encompass businesses from various sectors. These captives have also contributed significantly to Arch’s growth, as companies across diverse industries recognise the advantages of pooling resources for risk management and cost savings.
This trend is especially prevalent among mid-sized companies that may not have previously considered captives but are now exploring them due to rising premiums and reduced capacity in the traditional market.
Talent acquisition in a growing market
As Arch’s group captive operations continue to grow, the company faces the challenge of scaling its talent base to meet increased demand. Finding experienced professionals with expertise in underwriting, claims management, and captive support functions has become increasingly important to ensure the quality and efficiency of services offered to captive clients. Arch has made strides in hiring and developing a knowledgeable team to handle the growing volume of business, but the recruitment of skilled personnel remains a top priority to sustain future growth.
The company recognises that maintaining a high standard of service is crucial to its success in the captive market, especially given the personalised, client-centric approach that captives require. Arch’s investment in talent is part of its broader strategy to provide differentiated support and build long-term relationships with captive managers and their clients.
The recruitment of skilled personnel remains a top priority to sustain future growth.
The role of reinsurance
Cayman has long been a preferred domicile for captives, with a robust infrastructure that includes experienced service providers, favourable regulatory frameworks, and a stable economic environment. This reputation has fostered a strong reinsurance sector within Cayman, which serves as an integral component of the captive insurance ecosystem.
For companies like Arch, Cayman’s stability and dedication to captives make it an attractive location for investing in captive reinsurance solutions.
Arch’s position as both a fronting carrier and a reinsurer allows it to offer comprehensive risk solutions to captives, providing greater flexibility and capacity for clients looking to manage their exposures. By assuming risk alongside or above the captive’s retention layer, Arch enables captives to better navigate the current hard market conditions, where capacity is limited and premium rates are rising.
Impact of the hard market
The ongoing hard market in casualty insurance has significantly increased interest in captives, as companies seek cost-effective alternatives to traditional insurance. Rising premiums, restricted coverage, and reduced capacity have driven more companies to explore group captives as a viable solution. This trend has led to an influx of new business opportunities for Arch, prompting the company to scale its resources across underwriting, claims, and support functions to meet the growing demand.
In response to the hard market, Arch has expanded its staffing and bolstered its support infrastructure to accommodate current and expected growth. The company’s strategic focus on group captives allows it to capitalise on market conditions by offering alternative risk transfer options that appeal to companies struggling to secure affordable coverage in the conventional market.
Arch’s commitment to the market
Arch remains optimistic about the future of captives, particularly in the Cayman Islands. The company’s leadership in the Cayman market has been recognised in the 2024 Captive International Cayman Awards, where Arch was commended for its fronting and reinsurance capabilities. Arch attributes its success to the dedicated team it has built, which is focused on providing high-quality service to group captives.
The company’s outlook is bolstered by the Cayman Islands’ commitment to the captive sector and its continued investment in infrastructure and regulatory support. Arch is dedicated to further expanding its market share in captives, confident that Cayman will remain a preferred domicile for group captives in particular.
While Arch’s captive operations are a key part of its strategy, the company’s overall footprint is much larger. Arch Capital Group has a market capitalisation of around $38 billion and operates across insurance, reinsurance, and mortgage insurance sectors. The company’s insurance group writes approximately $10 billion in premiums annually, including its recent acquisition of Allianz’s US middle-market business, valued at $1.5 billion.
This acquisition complements Arch’s specialty footprint and positions it well to serve the needs of middle-market clients, particularly in the alternative risk and captive space.
Arch’s strength in specialty lines and its commitment to captives have enabled the company to carve out a unique position in the market. As the demand for alternative risk solutions grows, Arch’s expertise in group captives and reinsurance places it in a strong position to support clients seeking stability and risk mitigation in a challenging insurance environment.
Arch Capital Group’s success in the Cayman Islands reflects its strategic focus on group captives and its commitment to providing tailored risk solutions in a market facing significant disruption. The company’s dual role as a fronting carrier and reinsurer allows it to offer comprehensive support to captive managers, addressing both operational and risk management needs.
As Arch continues to grow its footprint, its focus on talent acquisition and market responsiveness will be central to sustaining its momentum. With a bright future for captives on the horizon, Arch is well-positioned to leverage its expertise and Cayman’s robust infrastructure to support companies seeking alternative insurance solutions in the face of a hardening market.
The company’s success shows its capabilities in the Cayman captive market and reflects its broader commitment to innovation and service excellence across the global specialty insurance landscape.
Bill Murphy is executive vice president, alternative markets, at Arch Insurance. He can be contacted at: wmurphy@archinsurance.com
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