16 May 2016Actuarial & underwriting

Increased control top reason for captive formation

The reasons why organisations are forming captives fall into three broad, value-driver categories, according to broker and risk management firm Marsh in a new report.

The top reason given was increased discipline and control purposes (54 percent), followed by reinsurance accessibility (38 percent) and writing unrelated risk (17 percent).

Approximately 18 percent of Marsh-managed captives wrote unrelated risk in 2015 and 95 percent of these organisations cited this as the value-driving reason for forming their captives.

“Writing unrelated risk can also generate additional underwriting profits and assist with overall captive risk diversification,” said the firm.

The report also found that cyber liability is one of the most well-known emerging risks.

“It is a constantly evolving risk that impacts most modern organisations,” said the report.

From 2014 to 2015, the number of Marsh-managed captives using cyber liability programmes increased by 30 [percent. Over the past four years, cyber liability programmes in Marsh captives, both new and existing, have grown by 160 percent.
“There is a need for innovative solutions to create security against emerging cyber risks, and captives are meeting this need for many of our clients,” said Marsh.

Amid political unrest and significant political violence, Marsh also saw noticeable growth of Marsh-managed captives accessing the benefits of the Terrorism Risk Insurance Act (TRIA). From 2014 to 2015, the number of Marsh-managed captives accessing TRIA increased from 93 to 109, a 17 percent increase.

This year, Marsh benchmarked 1,139 captives globally.