I always look forward to the findings from the annual Marsh Captive Solutions Benchmarking Report, released this week for 2015. In it they benchmark more than 1,000 of their captives which gives a pretty good overview on the captive industry and trends going forward – including some nuggets.
A lot of their findings are not a surprise to those who track the industry, including the fact that small captives are the fastest growing segment which is more evidence that captives make sense for companies of all sizes. I guess I might quibble with that conclusion in light of the potential abuse of the so-called 831(b) captives for non-insurance reasons. However, as the management of risk becomes more widely understood (and the expertise more available) I would agree that captives are truly for every enterprise – large and small.
OK, I have not read the report all the way through and plan to on my beach vacation next week (well, maybe after that), but here are a couple of other things highlighted in the report:
- Use of captives for nontraditional risks such as political and cyber risk are growing substantially (more than 11.26% from 2013 to 2014). This is not such a surprise based on much of the discussion over the past year on these issues, but it is good to see the trend growing in this area.
- Only a little more than one-in-five captives Marsh manages (374) are using captives to access federally subsidized terrorism coverage under the Terrorism Risk Insurance Program Reauthorization Act. Perhaps this has more to do with the relative risk to terrorism that most of our captive owners face (or feel they face). Probably not going to see a lot of coverage for TRIPPA from a captive that cover facilities nestled up to the Canadian border in Warroad, Minnesota (yes, there is a substantial company located there with a Vermont captive) but it bears looking into.
- Only 47% of US owned captives actually achieve insurance tax status and deduct premiums paid to the captive. This may surprise those that think captives are just another “tax-dodge”.
- Captive domiciles are flourishing in the European Union under Solvency II. Perhaps this fact will allay some of the fears of over-regulation of the captive insurance industry.
- Emerging markets in Latin America, China, and the Middle East are further embracing the use of captives. Again, not so much of a surprise to those following the captive trade worldwide, but a great opportunity for all of us in the industry!
I couldn’t agree more with the overall conclusion from the report: more and more companies are finding having a captive is a strategically important corporate asset, as it raises the visibility of risk management costs and serves as an effective control tool.
I will be off next week on a family getaway so will not be able to keep you intrepid followers (you six know who you are) connected until later July.
Thank you all very much, and I look forward to hearing from you.
Thanks for this update Rich. I agree with the report’s conclusions especially their conclusion about the importance of forming 831(b) micro captives. What surprised me is the assertion that only 1 in 5 use captives to access terrorism coverage. That is shocking as I was expecting that number to be a lot higher.