Marsh report reveals new trends in captive insurance

Marsh has released key findings from its forthcoming report, "Financial Institutions – Captive Benchmarking Analysis". To be published in September, the report will be the most in-depth review of the use of captive insurance companies by global financial institutions.

Among the findings are:

- Financial institution-parented captives do not rely as heavily on reinsurance as either global or EMEA-based (Europe, the Middle East and Africa) captives generally, with 62% purchasing no reinsurance. This suggests that they are either more able to accept higher levels of retained risk through high capital levels, or, that there is less availability of suitable reinsurance capacity, especially in the specialist liability classes.

- Captives owned by financial institutions write more professional liability and directors’ and officers’ insurance than captives in other industries, reflecting the more litigious nature of the financial services industry.

- Financial institutions tend to domicile their captive within their region of operation; in the EMEA region, Guernsey and Luxembourg are the preferred domiciles. The US Terrorism Risk Insurance Act (TRIA) has had a significant impact on the success of US-based captives, particularly Vermont, in writing property terrorism risk for US financial institutions. This is not least in respect of coverage for nuclear, biological, chemical and radiological (NBCR) exposures that are not normally available in the commercial markets.

- The three major categories of business written by financial institutions’ captives in EMEA are financial products (21%), property damage (16%) and professional indemnity (14%). The financial products are principally mortgage insurance, surety bonds and credit risks.

- The most popular domiciles for financial institutions’ captives in EMEA are Luxembourg (43%), Guernsey (20%), Bermuda (14%), Isle of Man (7%) and Malta (5%).

Jonathan Groves, captive consulting leader for Marsh in EMEA, said: “In comparison with other global industry groups, captives owned by financial institutions are among the best capitalised, both in terms of retained earnings and general capital levels. Therefore, they tend to rely less on reinsurance and have a greater ability to retain higher limits or overall aggregate exposure. In turn, this suggests that these captives are well positioned to participate to a greater extent in their parent’s risk financing arrangements.”