AM Best: European captives seeing uptick

Commercial insurance rate increases are driving an uptick in the use and importance of captives in Europe, according to analysis from AM Best.

The rating agency said that captives are being used as tools to provide their owners with the flexibility to navigate the insurance cycle and maintain access to cover on an ongoing basis.

A new Best's Market Segment Report, “Europe's Captives Show Their Worth Amid Changing Market Dynamics”, highlights an uptick in the use of existing captives in response to the hardening market conditions, and notes that several European captives have increased retentions or limits on existing cover, as well as expanded into new lines of business as their parents have looked at increasing captive utilisation.

The report said that AM Best-rated European captives have been resilient to the effects of the COVID-19 pandemic, generally maintaining stable ratings fundamentals.

In addition, commercial insurance rate increases are driving an uptick in the use and importance of captives, as tools to provide their owners with the flexibility to navigate the insurance cycle and maintain access to cover on an ongoing basis.

AM Best also said that even captives with good claims records are likely to face price increases for their reinsurance programmes in the 2023 renewals.

Finally, the rating agency pointed out that a captive's approach to ESG is often closely linked to that of its parent organisation - management of transition risk could lead to increased utilisation of captives.