The popularity of captives as a means of writing direct business is set to grow and grow, according to Clive James.
The European insurance market is seeing a growing number of corporates use captive insurers and protected cells to write direct business. There are a number of factors driving the change and they are sufficiently broad to suggest that the trend will continue to gather pace.
The first and most obvious trigger is market pricing: in a hard market risk managers will look more broadly for cost-effective solutions including reducing the cost of security. The expanding liability market is a good example, where a growing business issue and a spiralling cost is prompting companies to look for ways to regain control. Some companies have also sought to write direct property cover, although rates have not been as high, so the imperative to pursue this has not been as great.
Companies and their risk managers are also looking more broadly towards enterprise-wide risk management. Coupled with their increasing familiarity with alternative structures and the desire to gain more control of risks and costs, then running their own direct insurers clearly has its attractions. Even on a basic level, they appreciate the opportunity to set their own levels of administration and claims management.
While there are a number of internal risk management issues driving larger companies towards direct writing, there is also a fast growing European market fully able to compete for the business. Dublin was the original home for captives writing direct, but this has expanded so that Gibraltar and Malta are now attracting significant business. Denmark, Sweden and even Lichtenstein are also in a position to compete, with structures that are efficient and flexible enough to allow captives to be responsive and innovative in their treatment of the risk.
The market has now evolved to a point where some companies are setting up captives in different domiciles to write direct and to reinsure, to elicit the greatest economic and cost of capital benefits. The innovation is set to continue.