Originally published in Strategic Risk, Captive
Management, A guide to European captive domiciles and company
strategies, March 2009
Foreword by Peter Niven, Chief Executive of Guernsey
Finance – the promotional agency for the Island's
The captive market has been the subject of some particularly
interesting comments during the last two years.
For example, in October 2007, The Journal, published by the
Chartered Insurance Institute, featured an article 'Capturing
Interest' which reported that there were some 5,000 captives
globally. In the same year, Andrew Tunnicliffe, group managing
director, business development, Aon Global Risk Consulting,
commented that the report, 'Global 1500: A Captive Insight
2007', published by his firm, 'shows that growth in the
captive market is not slowing down.'
Tunnicliffe also remarked: 'There is still a long way to go
before companies are truly managing risk effectively ... you are
missing out on significant cost savings by not using captives as
part of your risk management programme.' The report notes that
insurance buyers within the world's largest companies are
failing to achieve a better quality of cover as well as cost
savings of typically 10-15%, through economies of scale, efficient
use of capital, leverage and more efficient use of senior
In addition, Marsh published a report last year called 'Next
generation captives, Optimising opportunities'. This revealed
that there were approximately 2,750 captives that were owned by
publicly identifiable companies (for example, a specific firm or
parent can be identified as shareholder/parent) and total premium
paid to captives in respect of property and casualty insurance was
estimated at US$55-60bn.
The report shows that approximately 75% of captives originate
from six countries and more than half are US owned. Indeed,
captives owned by US firms are the most significant contributors to
the overall growth of captives. It is perhaps not surprising then
that it is jurisdictions in this region which lead the way in terms
of recent growth as captive domiciles, although the traditional
'offshore' jurisdictions are facing increased competition
from 'onshore' US states.
The report also reveals that in Europe, Malta continues to lead
growth within the EU. However, in terms of numbers, it is Guernsey
which continues to be Europe's number one domicile for captives
(and third globally behind Bermuda and the US State of
Finally, the report stresses that 'whilst Solvency II will
undoubtedly impact the capitalisation of EU based captives, the
actual impact on existing EU captives may be quite limited given
the amount of capital already held.'
From a European perspective these reports demonstrate the growth
in numbers of captives established, the challenges that lie ahead
and the capacity for increased use of 'self-insurance' with
its potential benefits for organisations.
These advantages are now supplemented by other important factors
resulting from current global financial conditions which make
captives even more attractive.
It is generally accepted that soft market conditions, like those
that have recently prevailed, have a limiting factor on the use of
captives. A new report from Advisen, 'The Hard Market is Coming
(But Don't Hold Your Breath)' suggests that the commercial
market will begin to harden towards the end of 2009 because of the
changed economic environment in which insurers find
recapitalisation more expensive, passing these increased costs on
to clients in the form of increased premiums.
In fact, there are now clear signs of a hardening of premiums in
a number of critical corporate insurance markets. At the same time,
there is likely to be a heightened perception of the risks
associated with relying totally on the commercial market for
primary insurance given the failures or near-failures of some very
All of these factors are developing apace but underwriters often
become less willing to cooperate in the engagement of a captive in
corporate insurance programmes as the market hardens. This means
that establishing a captive should be done now rather than
The European Captive Management Guide 2009 therefore comes at
the most opportune moment. I have great pleasure in welcoming you
to this supplement which provides a comprehensive overview of the
European market and key information about forming your own
In this publication, we address how Dubai is leading the way in the application of technology to its healthcare insurance system and how the health insurance law is developing around these initiatives.
The European Insurance and Occupational Pensions Authority published a consultation paper on Implementing Technical Standards on the standardisation of the presentation of the insurance Product Information Document.
The MFSA issued a consultation document proposing the introduction of external auditing requirements for certain quantitative reporting templates that will form part of the Solvency Financial Condition Report.
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