Softening property market tests the captive value proposition

A softening property insurance market is forcing risk managers to more clearly articulate the long-term value of captives and structured reinsurance programmes, according to speakers at a panel discussion during the 2026 conference of the Captive Insurance Companies Association (CICA).

Speakers on the panel titled ‘Rethinking captive reinsurance strategy: Balance sheet protection beyond the primary programme’ said that while falling commercial market prices may tempt buyers to reduce captive participation, programmes implemented during the recent hard market are largely proving resilient because of the stability they offer over the insurance cycle.

Speaking during the reinsurance panel, Udo Kappes, head of insurance at RWE, said risk managers often face difficult internal conversations when trying to consolidate traditional programmes into captive structures—particularly when business units question the immediate financial benefit.

“When consolidating single-placed programmes, you have to explain what’s the benefit. In some instances, the CFOs are asking what’s the benefit for us,” he said. “For me the basic challenge was to find out are they better off with their single programmes, or can we really show a benefit in consolidation and captive use.”

Kappes noted that demonstrating the value of captives becomes harder as market conditions soften, with cheaper commercial capacity reducing the short-term financial appeal of alternative structures.

“The tricky one is we see the property market is becoming a bit soft now,” he said. “You explain that you cannot get the same benefit with a captive as from the external insurance market. But that’s difficult to explain to everyone.”

However, he argued that captives provide a strategic advantage by smoothing insurance costs over time.

“Overall the benefit for me is that it can take off volatility on a long-term basis,” he said. “For the CFO it’s a good argument to say in the future you don’t have to be concerned about hard market phases, but the price for that is you don’t get the lowest price in the captive.”

Other speakers suggested that rather than abandoning captive strategies during soft markets, companies should use falling prices to enhance structured programmes.

Graham McCarthy, partner at McGill and Partners, said buyers can capture savings from the commercial market while maintaining stable retention levels.

“It’s fair to say we do find ourselves in a soft cycle, and it’s a fair challenge for any risk manager to say exactly that, why should I not just consider negotiating harder with my direct commercial market to make those savings,” he said. “Therein lies the arbitrage.”

Rather than lowering retentions to reduce premiums, McCarthy suggested redeploying the savings into alternative risk transfer products.

“What this would lend themselves to do is retain the same retention level as previous years, take the savings from the market, redeploy it to these products, and then you are insulated away from pricing variability of future years for that same attachment point,” he said.

Despite concerns that softer market conditions could undermine captive structures created during the hard market of the early 2020s, Katherine Malley, head of alternative risk transfer for the Americas at Swiss Re, said programmes established several years ago are continuing to renew.

“We saw a number of structures activated or start in 2021, 2022,” she said, noting that re/insurers had been cautious about whether those structures would survive the current cycle.

“What we have found is that programmes put in place three or four years ago are sticking around. Renewing this year, renewing last year. It is showing the long-term benefit of stabilising pricing.”

Malley added that the stability provided by structured programmes benefits both corporate buyers and re/insurers.

“The commercial markets like the predictability of the structured programmes as well,” she said. “It’s a mutually beneficial structure, and part of the negotiating and programme design process is just landing on a structure where everyone’s interests are aligned.”

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