- Short-tail risk makes marine suitable for captive utilisation
- Captives owned by multinational firms most commonly writing marine
- Captives used more frequently as companies look towards greener fuel sources
There has been a growth in the number of captive owners looking a utilising their captives to write marine insurance with the availability of accurate data reducing the unpredictability of the risk.
There are several different types of marine insurance available on the market, with marine cargo being the most frequently purchased, covering the loss or damage of goods.
Marine war provides coverage against risks that arise from war, piracy, and other similar threats.
Hull and machinery insurance covers the ship and the machinery on board, while freight liability covers the liability of the ship owners and operators when moving the goods.
“Additionally, we have protection and indemnity (P&I) insurance, another form of liability coverage, which addresses third-party liabilities, including injury or loss of life, environmental pollution, and damage to other vessels or property,” Sarah Lindsey, marine underwriter at Zurich, told Captive Intelligence.
Companies are often drawn to utilising captives for lines of business when rates are rising or when then need to fill gaps in cover not available in the traditional market.
Premiums for marine cargo reached $20.5bn in 2022, representing an 8.3% uptick on the previous year and continuing the trend for market development in this sector, according to a report by the International Union of Marine Insurance.
Marine cargo rates can often differ depending on the commodity in question.
“If a company is shipping oil, the rates might be one thing, but if they are shipping a different commodity, the rates could be completely different due to the nature of the goods and the various perils associated with them,” one source said, speaking under the condition of anonymity.
There is sufficient capacity in the traditional market for marine cargo with the class of business recently experiencing a number of new entrants.
Captive involvement
Although companies of all sizes are utilising captives to write marine, it is more common among large multinational companies who are using them to write multiple lines of business.
With marine being frequently written in captives owned by larger businesses, it lends itself to single parent captives being commonly utilised.
However, as captive utilisation for marine increases for companies of all sizes it will naturally lead to more cell and group captives being used for the line of insurance.
Companies are often drawn to utilising captives for lines of business when rates are rising or when then need to fill gaps in cover not available in the traditional market.
“It’s significant and growing and fits well with a wider captive strategy,” he told Captive Intelligence.
Robert Geraghty, international consulting and sales leader at Marsh Captive Solutions, said marine is the fifth biggest line when analysing its global portfolio of captives under management.
“Over 35% are taking an excess of $10m limit on marine cargo, so the companies that do take it have strong risk retentions,” he said.
“Marine is there and it’s solid for the companies that do it. Captive retentions are increasing and high for companies that are writing it, but I wouldn’t say it’s a trending line of business.”
Esme Gould, UK head of captives at Zurich, said that the class is currently a relatively small proportion of the carrier’s overall portfolio.
“It tends to be included as part of a wider fronting proposition with other lines of business, particularly for larger customers along with property and casualty,” she told Captive Intelligence.
“At Zurich we are well positioned to look at marine cargo, both on a standalone and cross-class basis, and are open to growth in that area.”
Beverley Sayer, head of client services and HDI Global, said that captives are a growing part of the carrier’s proposition as more people are seeing the opportunity.
“They’re asking, ‘Why am I paying the insurers when I can keep some of that money for myself?’” she said.
“Marine cargo is an area of growth,” she added. “Speaking to the underwriters, who are exploring this more and more, I believe it’s only going to increase.”
Benefits
Williams said marine typically has accurate data available, making it a very predictable and well understood line of business and a safe candidate for captive use.
“If I was a captive owner, I would see this as quite a safe start point because there’s so much data and it’s so well known,” he added.
Williams said that because it’s so predictable and not an emerging risk, people can easily model how much risk a captive should take.
“Like always, a captive must get their retentions to a level they are happy with as a business, but I would say any clients who does not have it in their captives should at least consider it,” Williams added.
Lindsey said there is no reason why a company would not be able to put marine insurance through a captive.
“It’s just like any other line of business, and many companies do this,” she said.
Marine is a short tail risk making it a good fit for a captive as losses can be assessed relatively quickly.
Its short tail nature will also help offer a balanced portfolio for captives that are writing longer tail risks alongside it.
Considerations
The continuously changing environment with marine is one of the primary considerations captive owners should contemplate when deciding whether the line of business should be placed in their captive.
Lindsey noted that the class of business has faced challenges in the last couple of years.
“Marine insurance is an ever-changing line of business, as a result, the demands are constantly evolving,” she said. “We’ve faced quite a lot of challenges in the last couple of years.”
Lindsey noted that COVID-19 has caused supply chain issues and other related problems.
“People are changing the way they ship things, which has affected demand and the capacity we need to consider,” she added. “It’s definitely a changing environment.”
Gould said that as the types of goods and shipping methods change, Zurich will continue to assess how it looks at the risk.
“We will closely with our captive customers exploring this evolving area,” she said.
“We see all different classes going into captives and marine is no different, whether to manage volatility, attrition, or to diversify their portfolio of risk.”
Peter Carter, head of captive and insurance management and head of climate practice at WTW, said one type of marine risk that we may see captives utilised for more frequently, because of hesitancy in the commercial market, is when a company changes its fuel type to a more carbon friendly source.
“For example, some people have talked about ammonia as being an alternative fuel source for shipping,” he said.
Carter said this can pose risks of explosion and is also highly toxic to those onboard and marine life if there is a spillage.
“I could imagine commercial insurers being very wary and there may need to be some transition approach where a captive can help bridge the gap to make such risk commercially viable,” he added.
There is also a growing concern about the increasing transportation of lithium batteries, which can be prone to starting fires.