A landmark study finds captive capitalisation higher than required, while their growing risk appetite should be noted by reinsurers.

Many captives are significantly better capitalised than required by their current levels of risk assumption, according to a report by Marsh, described as the first detailed look at captive insurers around the world.

Next Generation Captives – Optimising Opportunities, compares the sector by region, domicile and industry.

The report, which surveyed one-third of the captives owned by publicly identifiable groups globally, also looks at the implications of Solvency II for captive insurers in Europe. One of the report’s key messages is that while captives comprise a significant proportion of global insurance, many are not optimising their structure to its full potential.

Analysts found that captive insurers represent 20% of the world's P&C insurance spend. They also found that the proportion of captives purchasing reinsurance varies markedly by region.

“In the US, about 40% of captives source reinsurance, but in the Asia Pacific region this figure is above 70%, representing a propensity to assume more risk,” said Jonathan Groves, head of captive consulting for Marsh EMEA. The UK, at 41%, is on a par with the global average, while the EMEA region (Europe, Middle East and Africa) is slightly above 50%.

Groves added: “Typically, captives will insure high frequency, low severity events, but what we have seen in third generation captives is a move into less frequent, high severity events across the board. They are taking more risks.” This, he said, can be seen in the policy limits where 20% of captives write policies with limits of more than $250m. He added that captives with reinsurance backing “tend to display more rigour”.