Ellen Charnley, president of Marsh Captive Solutions, is expecting 2022 to have been another record year for new formations by the largest captive manager in the world once the final numbers are confirmed.
Marsh broke their own records in 2020 and 2021 when 200 new captives were formed during those two years and speaking on GCP #78, Charnley said appetite for new captives shows no sign of waning.
“We have not seen any signs of it cooling down yet,” she said.
“I ran the very draft numbers year to date so far, and we’re on track for another record year.
“I’m predicting another record year this year. I could be wrong of course, we could fall off the wagon for the next couple of months, but I doubt it.”
North America continues to drive much of the new captive growth, but Charnley emphasised emerging regions and all territories are experiencing a boom in activity.
“That’s been a real delight to see in the position I sit as a global leader,” she said.
“I see that not only in the client activity, but also in our employee headcount activity. We’ve added headcount and new employees across the globe, which has been a delight as well.”
It is also those domiciles that are willing and able to respond quickly to new applications and business plan changes that have benefitted most from the growth activity.
“I would say it’s really a speed to market that the clients have wanted to see,” Charnley added.
“We’ve seen real growth in those locations where domiciles can be nimble and that’s not just the regulator, I mean, but the actual infrastructure of the domicile itself.
“So where captives can be formed quickly and nimbly, those are the real winners for growth. That’s where we’re seeing high growth, not only in numbers of formations, but clients being able to add new lines of business and add new premiums to their captive.”
Charnley also expects to see the captive premium and assets under management (AuM) across their portfolio of more than 1,300 entities continue to increase, despite the commercial market showing signs of softening in most classes of insurance.
“That would be a logical assumption for sure,” she said. “Captives are formed regardless of necessarily what the commercial market is doing. In times when the commercial market is challenging, it tends to encourage more companies to form captives.
“Even when the commercial market starts to go into more of a softening phase, we’ll still see captives being formed for other reasons. As that graph [insurance rates] starts to drop off, it’s important to note that there’s still double digits of growth happening … and some of those lines in some parts of the world are still incredibly challenging for our clients.”
Multinational dairy company Lactalis has received a captive licence from the French Prudential Supervision and Resolution Authority (ACPR).
The formation of Sorelac continues the momentum in France’s captive sector after the 2023 Budget (PLF) made progress, including provisions for introducing a new regulatory regime for captives.
Captive Intelligence understands Sorelac will begin by writing property damage and business interruption insurance. It is also Lactalis’ first captive.
It is understood to have been a 15-year project within the group, and has been completed by risk and insurance director Nicolas Incarnato, who joined in 2019.
Lactalis was keen to pursue the formation in France, despite the uncertainty surrounding the future regulatory regime.
“The demand will be high from new mid-sized players to set up their first captive,” one consultant working with several French captive prospects told Captive Intelligence.
“I’m quite optimistic to say that there will be a demand, especially if we now hear more about the world of captives in France.”
Maxime Schons, head of the Luxembourg office and licensed manager for the Luxembourg regulated entities under management, said: “SRS has recently opened its French office with a dedicated local service team specifically skilled to serve the current and future French regulated entities. It will be overseen by a new director to be appointed very shortly.”
Despite captive specific legislation only progressing last week, ACPR has not been hostile to captives, and since 2020 four new reinsurance captives had been formed in the domicile.
Multinational payment and transactional services company Worldline established a captive in 2020, while food processing business Bonduelle and consortium Groupe SEB set up captives last year.
In October 2022 multinational advertising and public relations company Publicis Groupe got its captive licence. Sorelac is the fifth establishment in that time.
French-owned captives have typically pulled towards Luxembourg and Ireland, while there are also French captives in Malta, Switzerland and Guernsey.
It remains to be seen whether captives already domiciled in a jurisdiction with a strong track record on captives will be tempted to re-domesticate now that the option is available, but experts expect the French market to be dominated by new captives initially.
Pandemic contributed to a volatile trade credit market in recent years
Expectation rates will rise further, insurers could become more selective
Captives could have role to play, but cautious approach advised
The number of captives writing trade credit insurance looks set to increase as the current global economic environment worsens, sources have told Captive Intelligence.
“With the pressure on cost that inflation puts on companies, every expense is being looked at twice,” Fabien Conderanne, head of financial institutions, Europe at WTW, said.
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The cyber insurance mutual formed by a group of European corporates has received its insurance operating licence from the Belgian regulator and will begin commercial operations on 1 January, 2023.
MIRIS (Mutual Insurance and Reinsurance for Information Systems) has been created by industry veterans Danny Van Welkenhuyzen, Mark Pollard and Philippe Obert and will provide additional cyber insurance capacity for its members.
“Innovation of this level of importance in the insurance industry is unusual,” said Danny Van Welkenhuyzen, MIRIS CEO.
“The National Bank of Belgium, as regulator, needs to verify all aspects rigorously – the suitability of the members, of the governance structure, the feasibility and solvency margins of the business plan.
“We have worked closely with them for many months to satisfy the stringent requirements appropriate to the project. They have been a fantastic partner and we are delighted to have obtained the license.”
MIRIS is domiciled in Belgium and will provide direct insurance. It can only accept members from the European Union and European Economic Area (EEA) with €25 million of capacity being allocated for each member in its first two years of operation.
The chief information security officers (CISOs) of its members, alongside their insurance manager colleagues, have played a significant part in the project and will contribute to a risk control function that screens new members and shares risk management best practices.
“Cyber risk is probably the fastest evolving risk the insurance market has ever needed to consider,” said Mark Pollard, chief operating officer.
“In an industry where data and past experience shape the market response, this rapid evolution creates uncertainty, and consequently market volatility which challenges the risk transfer objectives of the policyholders.
“MIRIS aims to provide additional capacity, and in the longer term to help to stabilise the market for its members. That depends on the members being exceptionally well protected against the risks.
“MIRIS will have a role in promoting and validating excellence in cyber risk protection, as well as providing risk transfer capacity.”
Anne Marie Towle is SVP and Global Captive Solutions Leader at Hylant. She is responsible for driving strategy and growth for Hylant’s clients creating global captive solutions. Contact Anne Marie here.
As organisations of all kinds face a continued hard insurance market, with significantly higher premiums and deductibles coupled with new coverage limits, establishing a captive insurance company becomes an increasingly attractive option.
The past year recorded increased levels of captive activity, and the trends suggest 2023 will be another banner year for this versatile, effective risk management strategy.
Given the uncertainty of the global economy and fears of a recession within the U.S., we may see a slowdown in captive formation during the early part of the year. But given the many advantages of a captive strategy and no signs of softening in the insurance market, we’re confident the growth rate will resume quickly.
In addition to new captive formations, we expect to see additional attention paid to the structure and scope of existing captives.
As organisation leaders become more familiar with the performance of their captives and increasingly comfortable retaining risk, they’ll examine opportunities for covering additional areas of risk and analyse whether increasing retentions would be prudent.
Companies that were once content to defer most risk-related activities to their insurance brokers or consultants are playing an active role in identifying and analyzing risk. Beyond addressing traditional property and casualty risks, they are turning to captives for non-traditional coverages such as business interruption, difference in conditions, supply chain, medical benefits, life and voluntary benefits.
This reflects increased sophistication with in-house risk management, a clearer understanding of risk exposures, and growing familiarity with non-traditional risk management opportunities.
Strategies that may have been considered exotic are becoming commonplace, and the increased availability of cell captives creates opportunities for more organisations to explore a captive.
Additional evidence of the increased sophistication is the recognition of the importance of data in risk management. Most organisations have long accumulated relevant data, but until recently, most spent little time analysing it to obtain tangible and meaningful insight into risk exposures.
The right data analysis tools can enhance an organization’s ability to determine how much and which types of risk they can comfortably retain and how best to address them. That provides greater confidence for decision-making and improves forecasting.
Cyber and climate drivers
As we get deeper into 2023, we expect to see increased captive activity around two categories of risk.
The first is the continued use of captives to address cybersecurity. Carriers bruised by large claims related to breaches and ransomware have tightened their underwriting and added exclusions and other limits, pushing many risk exposures back onto the policyholders.
Faced with significant premium increases for less coverage, organisations are seeking alternative ways to create safety nets for uncovered exposures, and captives have been the logical answer for many.
The second category is related to the climate effects on organisations. As regions worldwide experience extreme weather generally attributed to global warming, claims have skyrocketed.
Whether it’s the devastation wrought by Hurricane Ian in the southeast United States, record high summer temperatures across Europe, or droughts and resulting wildfires on multiple continents, weather-related events are threatening property, disrupting operations such as supply chain activity, and creating previously unforeseen liabilities.
As underwriters adjust coverages and premiums in the wake of large claims, organisations increasingly look to captives for creating customized solutions.
Additional risk categories are emerging and are likely to play more prominent roles in future planning and the use of captives.
As mentioned, supply chains have been affected by weather, but that’s just the beginning.
Geopolitical issues such as Brexit, the Russia-Ukraine conflict, and political instability in established and emerging economies threaten dependence on supply chains globally.
The impact of the computer chip shortage on the world’s vehicle production is a familiar example, and it’s far from the only one.
The lessons of the COVID pandemic are not lost on organisation leaders who recognise that increased global travel and commerce are likely to foster future pandemics.
Our captive team has been working with reinsurance providers to develop effective solutions for managing the risks associated with future viruses or other diseases which may threaten the world’s health.
Finally, growing attention to environmental, social, and governance concerns is a promising area for captive strategies.
As consumers and governments place greater emphasis on organisations’ activities and demand accountability for ESG initiatives, those organisations are likely to encounter risks that may best be addressed through captives.
As the world and the global economy grapple with a long list of unprecedented challenges, company leaders need to step up their planning efforts, looking far beyond the next quarter to understand and assess the potential business impact of these far-reaching changes.
In such an uncertain environment, risk management will play a more significant role in determining both big-picture strategies and operational details.
Organisations wise enough to look beyond 2023’s immediate needs will be more likely to include captives in their toolbox of solutions.
OneNexus is planning to increase the $1.2bn in funding it is providing to oil and gas companies to help them decommission their liabilities, according to the company’s chief risk officer, Gerry Willinger.
“We think it’s approximately a $500bn issue onshore in North America,” he told Captive Intelligence.
“Our goal is to get through the first tranche of approximately $1.2bn of gross liability exposure in a year. And by next year, hopefully we’ll be out there with another $1.2bn or even bigger.”
The company, supported by its Oklahoma-domiciled captive, recently entered into a definitive agreement with Munich Re’s Energy Transition Finance subsidiary to provide regulatory capital for OneNexus Oklahoma Captive Corporation (OOCC).
Munich Re’s financial commitment, along with capital provided by OneNexus’ founding members, will ensure that the management company has capital to cover up to $1.2bn in liabilities, which it can use to provide energy operators with a clear path to funding their long-term decommissioning liabilities.
Willinger said one reason they had picked the Sooner State for OOCC was because of its regulation of multi-cell captives.
“As you build up the pools of assets, there’s going to be certain assets that fit better into certain cells from a risk perspective,” Willinger said.
“If one client has 25,000 wells, they’re likely to want to be in their own cell, like a separately managed account.”
He highlighted that there are around 3.5 million wells in the US. “And each of them is going to have different levels of risk and duration and you’re going to want to be able to pull those together, to manage the risk effectively.”
Willinger also said the company was attracted to Oklahoma’s history with oil and gas companies.
“We wanted an oil producing state that had a lot of production, and a lot of wells, and we wanted a regulatory body that understood, from an insurance standpoint, the risk associated with the future liability of inactive, unplugged wells,” he added.
This mirrored the thoughts of Oklahoma’s new captive director, Steve Kinion, who highlighted the state’s connection to the oil and gas industry in a recent interview with Captive Intelligence.
“They’re welcome in Oklahoma because Oklahoma has a long history with that industry,” Kinion said.
Willinger said OneNexus had considered the possibility of providing the funds through a trust, before finally settling on the captive model.
“You have the obligation, the moment you drill the well to decommission it, and it’s a growing liability,” he explained.
“So, when we thought about those concepts of liability and risk management, we went down two paths.
“One was to form a trust to help do it, or the other one was captive insurance,” he said.
“And the reason why we went the captive insurance route is because we think having the long-standing insurance regulations provides and an additional level trust that the money will be there, when claimed, is important.”
He said the company needed a regulated insurance concept that provided a framework where it could be rated from an insurance standpoint and be “regulated by the insurance representatives to verify that the funds will be there”.
In episode 78 of the Global Captive Podcast, supported by legacy specialists R&Q, Richard is joined by Ellen Charnley, President of Marsh Captive Solutions, for our annual interview new formation trends, uses of captives by MGAs, third party growth and ESG.
Luke interviews a familiar face as Oklahoma’s new captive regulator, Steve Kinion, and also has a report from the Cayman Captive Forum, which features, in order, Erin Brosnihan, at Kensington Management Group, Adrian Lynch, of Artex, Robert Leadbetter, of USA Risk, and Colin Robinson, at SRS.
Marsh Captive Solutions has announced a reshuffle of its leadership in Dublin, Asia Pacific and London as Stephen Hawkes and Brian McDonagh retire.
From 1 February, 2023 Lorraine Stack, international consulting and sales leader at Marsh Captive Solutions, will add leadership of Marsh’s Dublin operations to her current role.
She succeeds McDonagh, who is retiring after 27 years with Marsh, and be responsible for a team managing single parent captives and special purpose vehicles domiciled in Ireland.
Stack will continue to report into Ellen Charnley, president of Marsh Captive Solutions.
Stuart Herbert has led a fast growing captive operation in Singapore since 2011 but will now be relocating to the UK to take on the position of international captive consulting practice leader. He featured in GCP #47 discussing growth in the Asia Pacific captive market.
He succeeds Stephen Hawkes, who is retiring after 29 years with Marsh, and will lead a team responsible for captive feasibility studies and strategic reviews for prospective and current captive owners.
Herbert’s successor for Asia Pacific will be Nisala Weerasooriya, overseeing offices in Singapore, Labuan and Australia.
Weerasooriya is currently head of Marsh Captive Solutions’ New York office and has held various client services roles over the past 30 years.
“Throughout their careers, Lorraine, Stuart, and Nisala have demonstrated exemplary leadership and unwavering dedication in supporting our captive insurance clients,” said Charnley.
“In this time of unprecedented captive growth, their considerable experience will be invaluable as we seek to provide enhanced services and resources to our clients.”
Herbert will report into Lorraine Stack, while Weerasooriya will report to William Thomas-Ferrand, leader of Marsh Captive Solutions, International.
Ellen Charnley, Lorraine Stack and Stuart Herbert have all featured in numerous episodes of the Global Captive Podcast, alongside colleagues and clients. Listen to all episodes featuring Marsh on their Friend of the Podcast page.
Two captives owned by energy giant Phillips 66 have had their financial strength ratings of ‘A’ (Excellent) and long-term issuer credit ratings (long-term ICR) of “a” (Excellent) affirmed by AM Best.
Radius Insurance Company is domiciled in the Cayman Islands, while Spirit Insurance Company is domiciled in Vermont.
Phillips 66 also owns SCH Insurance Company, a Texas-domiciled captive established in 2014, which is not rated.
Earlier this year Spirit received approval from the Department of Labor (DoL) to begin reinsuring the Phillips 66 group life insurance plan, which is being fronted by Zurich American Life Insurance Company.
Spirit provides property damage, business interruption, construction all risks, excess liability and employee medical reimbursement insurance to Phillips 66 and its US operations, while Radius provides similar coverages to the group’s overseas operations.
Spirit also provides terrorism coverage supported by reinsurance protection provided by the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA).
The ratings reflect Spirit’s and Radius’ balance sheet strength, which AM Best assesses as very strong, as well as each company’s adequate operating performance, neutral business profile and appropriate enterprise risk management. The outlook for the ratings is stable.
“Spirit and Radius each have inherent benefits of financial flexibility and support as captive insurers for their ultimate parent, Phillips 66,with integrated operations, closely aligned and uniform interests and establishment as core elements in its overall risk management program,” the ratings report stated. “The captives’ loss experience has remained generally favorable due to the parent’s strong loss control program and to a relatively small number of material catastrophe losses. Phillips 66 conducts periodic reviews of Spirit’s and Radius’ potential loss exposures through an industrial risks specialist.”
Captive professionals in France have welcomed the all but passing of the 2023 Budget (PLF), which includes provisions for introducing a new captive regime in the country.
French risk management association Amrae has been lobbying hard for more than two years for legislation that would make it easier for captives to be established in France.
Prime Minister Elisabeth Borne announced on Thursday she would push the finance bill through without a vote, clearing the path for progress.
The existing French regulatory regime is not hostile to captives and since 2020 five new reinsurance captives have been formed in the domicile by French corporates.
Multinational payment and transactional services company Worldline established a captive in 2020, while food processing business Bonduelle and consortium Groupe SEB set up captives last year.
In October 2022 multinational advertising and public relations company Publicis Groupe got its captive licence, and Captive Intelligence understands another captive was licensed on Wednesday evening.
One of the key negotiating points to get a specific captive regime introduced in France was keeping hold of the equalisation provision already available to reinsurers in the country.
“France is a very interesting domicile for captives,” Laurent Bonnet, head of captive and alternative risk transfer solutions at Marsh France, told Captive Intelligence.
“The regulator is very approachable and supportive to develop captives in France. However, in an international competition, Luxembourg is far beyond France in that respect.
“The equalization reserve is definitely a key differentiator and there will be new captives for sure, but less than we could expect.”
Bonnet added that the success of the legislation would depend on an application decree which will establish the rules under which captives are formed and governed.
“We know the framework now, but we don’t know yet all the details. The devil is in the details.
“But if we benefit from a coherent legislation compared to the one in place in Luxembourg, then we should triple the number of captives in France in the coming years. And some captives based outside could be repatriated.”
French-owned captives have typically gravitated towards Luxembourg and Ireland, while there are also French captives in Malta, Switzerland and Guernsey.
It remains to be seen whether captives that are established in a domicile with a strong track record on captives will be tempted to re-domesticate now that the option in available.
TMF Group works with large European insurers, including several direct writing captives, on their insurance premium tax administration and compliance.
France-based Christophe Bourdaire, IPT quote content director at TMF, said they had been following the developments closely.
“With a focus on reinsurance captives, and a primary interest in domestic companies, it will be intriguing to see what interest is generated from local companies with many CAC 40 companies already having captives established in other European domiciles, such as Luxembourg,” Bourdaire said.
“We will wait to see if in the future provisions extend to the set up of direct write captives.”
