Market conditions no longer drive formation levels of captives

Formation levels of captives are now almost unaffected by whether rates in the wider re/insurance markets are hard or soft, a panel of experts agreed at the annual  Bermuda Captive Conference, which is taking place at the Fairmont Southampton Hotel on Bermuda this week.

The session, called ‘Risk – the World Over: Emerging LatAm, Asia & Canadian Market Review’, was moderated by Gary Harris, partner, Appleby (Bermuda). It also featured panelists Mark Allitt, managing director, KPMG (Bermuda); Matthew Latham, global head of captive programmes, XL Catlin; Jason Flaxbeard, executive managing director, Beecher Carlson; and Dennis Silva, president, Cedar Consulting.

Flaxbeard stressed that while there might have once been a correlation between hard rates and formations of captives, this is longer true.

“There are so many other reasons they get formed now, it does not seem to follow that pattern anymore,” he said. “That said, some people were concerned after the 2017 hurricane losses and perhaps were grateful they had captives in place. But those concerns did not seem to drive any formations.”

Silva added that the business case for forming captives now revolves around much more of a value proposition as opposed to being a decision made purely on price.” Even when you look at mid-market accounts, there is a lot of sophistication there and we can identify real value for clients that is more than pure price,” he said.

Allitt noted that he was also hopeful that any captives formed in a soft market will only work even better if rates increase. “We believe the vast majority formed now will also be very proactive in their decision making going forward. We are seeing a different breed of captives formed now.”