There are a multitude or reasons why companies are looking to use captives in the renewables space, according to Emma Sansom, group head of captives at Zurich Commercial.
“It varies depending on the captive owner’s strategic ambitions and the objectives of the captive,” Sansom said.
“For some captive owners, the captive(s) are well established, well capitalised entities that provide strategically important risk financing able to retain substantial insurance capacity, and in some cases the captive will look to retain significant portions of the parent groups exposures.”
Sansom highlighted certain companies will set up captives to fill gaps in existing capacity that currently exist in the renewables class, as well as to access wider coverage from the reinsurance market through higher attachment points above the captive’s retentions.
“Or provide cover to the parent at rates that aren’t impacted by the poor loss experience of others in the market,” added said.
Renewables companies will also be able to finance and diversify a portfolio of heterogenous risks through the utilisation of their captive.
In certain cases, the captive may be used a vehicle to provide bespoke wordings that are not available in the current renewables market or incubate risks relating to emerging technology.
Sansom added that the reinsurance landscape for captives is becoming increasingly sophisticated.
“[It is] providing specific facultative reinsurance, traditional towers of reinsurance provided by a panel of reinsurers, or cross class reinsurance structures including structured reinsurance, above the captive’s retained exposure, typically through a blend of some or all of these mechanisms,” she said.
“The value that a fronting insurer such as Zurich can add to this aside from access to extensive underwriting experience largely comes from our deep knowledge of the local markets, our ability to handle claims locally, and administrate premium flows and claims to and from the captive.”
Captive Intelligence published a long read last week on the use of captives in the renewables market, in which Michael Kolonder, global renewable energy & US power leader at Marsh, highlighted the “hyper specialisation” of the renewables market.
“The property market is segmented and specialised, and renewables can be a hyper specialisation within the broader space, or it can be just another asset,” Kolodner said.
In all cases, Sansom noted the captive ultimately acts as an enabler for businesses to develop and deploy innovative technology “by providing oversight and control, and providing protection when risks materialise”.