11 July 2013Accounting & tax analysis

Mid-size manufacturers save through group captives

Mid-size companies in light manufacturing are a perfect match for group captives as they can help them avoid premium hikes as rates in the open market harden.

That is the view of Michael Douglas, director of business development at Aon Risk Solutions. According to Douglas, light manufacturers like textile producers and food processors will be the first to experience premium hikes as the market hardens and will thus benefit more from early adoption of the group captive concept.

“They will be the companies on the front lines for any rate increases,” Douglas said. “Their natural risk doesn’t increase, and the mere fact that they’ll be doing more business because the recession will end doesn’t make them more of a risk.

“Their risk hasn’t really changed— just the amount of business they’re doing has changed. Because of that they are the companies who can get best use looking at a group captive right now, in anticipation of when prices go up in 18 months to two years.”

Douglas concluded: “Most of these middle market companies are telling us, the brokers, that they see the storm clouds gathering. They want to be involved in captive risk transfer ahead of time so that they can start putting money into a group captive now rather than wait two years, find themselves in the middle of a hard market and be forced to play catch-up.”