- Market softening, but exposures and loss history still key
- Property often written with other lines to diversify a captive’s portfolio
- Parametric property policies increasingly relevant for captive owners
Although there are signs that property pricing is softening in the commercial market, the line is still one of the main drivers behind growing captive utilisation around the world.
According to an Aon Q3 Mark Dynamics Report, property rates decreased from +3.4% in Q1 2024 to -0.94% in Q2 2024.
This is the first time rates have been in negative territory since Q3 2017.
“Given current softening/stabilisation of market, many carriers are becoming more competitive with capacity and pricing,” the report noted.
Captive Intelligence recently published a Long Read highlighting that despite indications of a softening global insurance market, captives are expected to continue to be a popular tool for those companies looking for alternatives to the traditional insurance market.
Although indications are that the market is stabilising, there is subjectivity in pricing and capacity dependant on an insured’s loss history and whether they have operations in areas with high natural catastrophe exposure.
Globally, weather is more extreme and volatile, while more locations are exposed to frequent, hazardous and costly environmental catastrophes.
Inflation has, and continues to, increase the cost of items such as building materials and labour.
In May, Marsh said that property was now the fastest growing line of insurance written by captives in its portfolio, with 29% more captives under its management insuring the line compared to last year.
A key challenge when writing property risk is that it is a largely volatile risk, though it is short tail in nature, which is generally considered a natural fit for captive utilisation.
When captives are writing property risk, they are usually involved with the primary layer, but they are also dealing with increasing deductibles.
Oliver Davies, chief distribution officer at HDI Global for UK and Ireland, said that from his perspective, property continues to be a significant focus for captive managers.
“The primary concern revolves around the supply chain and the macro environment, particularly with ongoing conflicts in Ukraine and Israel, as well as concerns related to Taiwan and other global issues,” he told Captive Intelligence.
Davies said that factors place supply chain management at the top of the agenda— “at least among the top three priorities for most risk managers”.
“As a result, ensuring the protection of their organisation’s assets remains an important consideration for captive managers,” he said.
Asian and European trends
Steve Tunstall, captive director and general secretary at Captive Insurance Association Singapore (CISA), highlighted the “extraordinary weather patterns” that have developed over recent weeks and led to serious flooding in Europe.
“This is happening even in early fall, not just winter,” he said. “These drastic changes in weather have been occurring in Asia for some time as well, with varying typhoon and storm patterns now impacting different parts of the region.”
Coupling this with the fact that around half of the largest cities in Asia are coastal and facing issues related to rising sea levels, Tunstall said “we are seeing insurance pricing changing in unprecedented ways”.
“While this is specific to certain cities, many different cities across various countries are beginning to experience these shifts,” he said.
Tunstall added that when we consider sectors that are less desirable to insure – such as power, coal, and oil and gas – large businesses in some countries are witnessing skyrocketing insurance premiums.
“This has become a significant topic in boardrooms, whereas insurance used to be merely a footnote in annual general meetings,” he said.
“Now it is a core concern for many sectors and businesses, as input costs have become such a substantial factor that companies are saying, ‘We really need to find a different way to manage this’.”
“As a result, conversations about self-insurance are no longer dismissed as they might have been ten years ago, and that perspective has shifted.”
Lawrence Bird, captive consulting leader at Marsh in Asia, said that years ago, when property rates increased significantly, it was almost a “double hit” for companies.
“Property premiums rose sharply, and at the same time, property values were increasing due to inflation,” he said. “Premiums were going up regardless because of higher property values.”
Bird said that on top of that, many properties in Southeast Asia were exposed to natural catastrophe risk.
“Some well-known global companies with significant manufacturing operations in Southeast Asia were and still are particularly vulnerable to these risks,” he added.
“Many companies in natural catastrophe zones are exploring alternative solutions, such as the parametric market,” he said.
Bird said using a captive to access the parametric reinsurance market can be beneficial, as it offers a separate solution.
“While there have not been many deals done as yet, there are a lot of discussions happening around this, and I expect it to gain more traction moving forward,” he said.
Vittorio Pozzo, director for Europe & Great Britain in the captive advisory team at WTW, said that from a European standpoint, property and cyber still take the lead when it comes to captives.
“I’m seeing increased interest in writing employee health and benefits for medical expenses and long-term care, for example,” he said.
“Compared to the same period last year, there’s more focus on employee health and benefits. Additionally, I’m noticing more interest in specialty lines, such as trade credit.”
Yann Krattiger, head of alternative risk transfer EMEA at Swiss Re Corporate Solutions, said most captives typically write three or more lines of business.
“They often include a mix of property and casualty to take advantage of the diversification benefits between short and long-tail lines,” he said.
“We have seen captives used to fill gaps in coverage, particularly in cyber, but that trend is slowing down a bit as market conditions have slightly improved.”