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Captives are poised to benefit from the current turmoil in the insurance industry, Brian First, president of Arch Insurance, told delegates at the Cayman Captive Conference 2022.
Giving an update on the insurance market, Arch’s First said that the traditional insurance market was showing signs of underperformance with high combined rations, the impact of inflation, increased levels of uncertainty and possible recession ahead in the US and other countries.
According to First the traditional insurance industry is seeing targeted returns lower than in previous years, and has reacted with strategic exits, lower capacity, coverage restrictions and capital re-allocations.
D&O price changes spiked in 2020-21 and are now declining. Cyber insurance has also seen a spike in pricing, with US cyber GWP growing 60% in 2021 to $6.5 billion, he said.
Looking at the property market he said that the frequency of perils is not rising, it’s just that more people are moving into the areas where these have been happening, something that is more manageable for many insurers, but still an issue for the market.
Looking at captives however, First said there has been an unprecedented use and expansion of captives, with more risk retained and coverages, more rewards, and a “torrid pace of new formations”.
Captives offer custom alternatives, he said as he highlighted the rise of fronting and hybrid carriers, which have seen 300% growth over the last seven years.
He also warned that the market needs to recognise the impact of pervasive inflation: economic, medical, wage, social inflation, with the latter seeing an increase in jury awards. The industry must recognise possible grey and black swan events, such as another pandemic or a solar flare like the Carrington Event of the Nineteenth Century, which would have a devastating impact on modern power grids and electronic devices, he warned.