The European captive market has been rejuvenated over the last four years, having “levelled off” during much of the 2010s, according to Paul Eaton, CEO of Artex International.
The captive manager, owned by Arthur J. Gallagher & Co, appointed Eaton as its International CEO at the start of the year, with Nick Heys transitioning to the role of chairman of the company.
Eaton spoke to Captive Intelligence in an exclusive interview following Artex’s acquisition of Irish captive manager Allied Risk Management in May.
“We were really nicely positioned with our business development team and received a large amount of inquiries and proceeded with a good number of formations,” he said.
“It’s been great to see such a rejuvenation in the captive industry. I think most practitioners in Europe would agree that captive formations had levelled off during the 2010s.”
Eaton highlighted that new business is deriving from a number of regions.
“Historically, the UK has been the natural home market for Guernsey, and we had some interesting formations from that region, but also from EMEA and Australasia,” he said.
“We’ve had success in those regions before, but particularly in relation to Australia, we saw some strong demand for cell business as a result of the distressed market.”
He noted that a lot the new formations were single-parent structures.
“Though the majority of these were more interested in the cell option, which is not a huge surprise given the cost and operating efficiencies cells provide,” he said.
“We have also seen a number of limited company formations.”
As Artex International CEO, Eaton serves on the company’s executive leadership team and drives Artex’s strategy on talent, organic growth, M&A, and operational efficiency for its international operations, including Guernsey, Gibraltar, Malta, London and Singapore.
“It is a wonderfully challenging role, which I’m really enjoying,” he added.
“Having worked for a long time with my predecessor Nick Heys, I felt pretty well placed given the variety of roles I’d previously covered from business development and account management to running parts of the European business.”
Lines of business
Eaton revealed there has been an expansion in the lines of business clients are looking to write though captives, with Artex seeing a growing number of cyber and D&O enquiries, for example.
“The other area where we’ve had some impact in the past, and where we’re seeing renewed interest is employee benefits,” he said.
“It’s exciting to think of these new coverage options that clients are considering for their captives, and I guess that’s been partly brought about by the more challenging market conditions and also a desire to diversify captive retained risk.”
He highlighted that cyber in particular can generate substantial losses, so it is important that clients balance the ability to retain risk within their captive, while also accessing risk transfer options in order to prevent a disproportionate net risk being retained in the captive.
“Cyber as a coverage for captives is still a fairly new and developing market,” he added.
“I believe clients will start to use their captives more to incubate risk and to grow risk retention in this class.”
Group captives
Eaton highlighted that there are some notable distinctions between the US and European markets when it comes to attitudes towards group captives.
“Generally speaking, the US premium spend is much higher, there’s much more exposure to catastrophe risk, and importantly I think culturally, risk sharing is more acceptable than it has been in Europe,” he said.
He noted that Artex has received a number of inquiries over the years about group captive formations in Europe “and we’ve worked on potential solutions to show how we could manage risk more effectively”.
“In many cases I believe what holds this back is the willingness of people to collaborate and needing to convince a number of stakeholders that some risk sharing doesn’t mean that you’re sharing any of your trade secrets or your USPs, so perhaps there is a cultural issue,” he said.
Singapore
Eaton noted that although there has not been much activity of late, Artex has an interest in working with clients who currently have captives in Singapore or are wanting to launch new captives in the region.
“From our perspective, it makes sense for us to have an offering where Gallagher has a presence as we can work alongside each other as sister companies,” he said.
“Gallagher has a strong presence in Australia, New Zealand and a growing presence in Asia, so, we think it’s a domicile that could attract more captive business.”
He noted that within Singapore, Artex is currently focussed on feasibility studies and captive health checks.
“But that could convert into captive management quickly,” he said.
“My understanding is that there has not been much growth in Singapore captives over the last few years. I’m sure market conditions have encouraged some increased captive retentions, but I don’t think we’ve seen growth in numbers.”