Despite the widely-held belief to the contrary, the captive market is still ripe for growth, especially in Europe, explains Andrew Tunnicliffe.
Many believe that the captive market is rapidly approaching saturation point. However our research shows that just 64% of the Global 500 (G500) companies have a captive at parent company level. The UK shows highest captive utilisation where 95% of the G500 companies use a captive. Other countries with a high take up include Australia (88%) and France (82%). We also still see growth potential in Germany (66%), Italy (30%) and surprisingly, the US (77%).
Many companies have more than one captive at the parental level for a variety of valid financial and strategic reasons. For example, the need for organisations to segregate certain risk financing funds and issues of regulation/legislation could lead to the establishment of multiple captives. The G500 as a group owns 478 captives, some 1.5 captives per company.
Just 27% of the G500 Asian listed companies have a captive. China has 20 G500 companies and none have captives. South Korea has 12 G500 companies and just two of these have captives. And while Japan has 70 G500 companies, only 23 are captive owners. Where Asian companies do own a captive, they do not tend to utilise an Asian domicile. Just 23% of Japanese captives are domiciled in Asian domiciles (Singapore and Hong Kong). In fact, less than a third of Asian captives are actually domiciled in Asia.
The top five domiciles in terms of the G500 are Bermuda, Vermont, Luxembourg, Ireland and Guernsey, accounting for 79% G500 captives. Out of the 478 captives in the G500 we could trace the formation date of 452 of these. There is no significant evidence of any sort of knee-jerk reaction to major loss events or vagaries of the insurance market, although there was significant growth between 1995 and 2000 from which Bermuda was the main beneficiary.
Offshore is still the preference for the G500. Realistically, the G500 captive owners have had captives established for many years and hence there may be no significant business reason to relocate operations. In Europe the direct writing phenomena is gathering pace with locations such as Sweden, Malta, Gibraltar and Ireland all making progress, largely because of the ability to directly write into the EU from one location. This may change the European profile significantly for the G500 as we go forward.