Rising healthcare costs drive captive growth

Rising healthcare costs are driving group captive formations while interest in alternative risk transfer solutions remains strong despite stabilising US property rates, Artex Risk Solutions has stated. 

The alternative risk specialist said in its six-monthly newsletter Alternative View that mature captives are also exploring diversification into areas like employee benefits, loss portfolio transfers to release capital for new business lines and “even parametric solutions”.  

But it warned that regulation may be the biggest challenge for the captive industry. 

“Companies are re-evaluating domicile choices in response to the impact of new IFRS accounting standards on operational costs for jurisdictions including Malta, Singapore, and to a lesser extent, Dublin,” the report said.  “Meanwhile, the OECD’s global taxation policy will have an immediate impact on Bermuda-based captives.” 

Artex added that Alberta is gaining traction as a captive domicile in North America while Italy and Spain are following France in promoting onshore captive formations. 

“Although property insurance prices are stabilising in the US, challenges remain for buyers in catastrophe-affected areas, particularly those exposed to secondary perils such as severe convective storms,” the report said. 

“Recent events, most notably Hurricane Milton, could negatively impact wholesale ratings in 2025, with overall market conditions promoting insurers to focus on specific industries and geographic locations to seize new opportunities.” 

It added that against this backdrop of commercial market uncertainty, some captive domiciles are attracting interest from insurance buyers. 

“Alberta has emerged as the preferred domicile for Canadian firms interested in captive ownership, offering proximity advantages and potential tax benefits over offshore locations. 

“Meanwhile, US states such as Texas and Georgia are becoming popular hubs due to self-procurement tax variations,” the report said. “While Bermuda remains a popular captive domicile, taxation and travel considerations (especially post-Covid-19) are increasingly front of mind for prospective owners. 

“Businesses are choosing onshore domiciles to avoid high out-of-state taxes, which can exceed 4.5%.” 

Health insurance is a primary drive for captive formations, the report said. 

Barry White (pictured), executive vice president for sales, analytics and advisory for Artex Risk Solutions, North America, added: “Health costs are skyrocketing for US companies and they are looking at how to fund this differently.

“The concept of medical stop-loss insurance is gaining traction in the captive market, particularly for group captive solutions.”

The report said this is driving the growth of group programmes, which now account for 14% of the wider captive market and are likely to grow nearer to 25% by 2028. 

Cell captives are also growing in popularity, both for Asia Pacific companies and to public sector clients and larger companies which face internal approval challenges for full-fledged captives. 

It added: “Across all regions, mature captive owners are re-evaluating their solvency positions and considering risk diversification options. These include loss portfolio transfers to release capital for re-allocation to new business lines and integration of employee benefit programmes to increase solvency capital. 

“Captive owners are also exploring parametric solutions to address climate-related risks.” 

The report also said captive syndicates are gaining interest, especially from multinationals with gross written premium of more than $30 million, with Lloyd’s offering financial strength global licensing and reputational advantages. 

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