Tuesday, May 21, 2024

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THG captive “absolutely critical” for cyber renewals, market negotiations

THG Plc’s pure captive formation in Guernsey last year played a key role in ensuring a smooth cyber insurance renewal and has given the fast-growing group more leverage in the commercial market.

Speaking on the Global Captive Podcast Joshua Cryer, director of risk and insurance at the e-commerce retail company, said he was already a big believer in captives from his previous roles as a risk manager and broker, but upon arriving at THG it was clear the hardening cyber market presented an immediate challenge that needed to be addressed.

“I was going to need something else within my arsenal to enable me to negotiate effectively with the cyber insurance market specifically, given the fact that the market was hardening at such a rate of knots,” he said.

“When we talk about insurance enabling the business, at that point it would have potentially hindered our business from operating if we were unable to secure the right levels of cyber insurance that we needed.”

Cryer began work on a feasibility study with RISCS in October 2021 and was able to get the Guernsey captive established in time for a March 2022 renewal which he described as “absolutely critical”.

He said it was important to be in regular contact with RISCS, the captive managers Aon and the reinsurance market throughout the feasibility and formation process to ensure all the pieces fell into place and made the fast formation possible in the timeline required.

“Without Allianz providing that stop loss reinsurance agreement in record time, I wouldn’t have been able to form the captive at that March 2022 renewal,” he added.

“Whilst the captive was formed specifically for that cyber exposure, we knew that we had to diversify the portfolio of the captive to enable us to manage that risk versus having a cyber heavy risk in year one.”

THG Insurance Limited was formed in March 2022 and Cryer explained how the captive is already delivering value to the group.

The captive has reported significant profits in its first 18 months, ahead of expectations, while, more importantly, it has delivered tangible benefits for the enterprise risk management and insurance strategy.

More ownership and focus is put on managing and mitigating risks, while there has also been insurance premium savings.

“It’s significantly helped us, with our new broker Marsh, to achieve a significant reduction in the overall insurance spend at the 2023 renewal,” Cryer said

“So that equated to circa 25% across the whole portfolio. It was that skin in the game that enabled us to speak confidently with the insurers and for them to understand that actually we’re taking the risk and confident in our risk management.

“It enabled us to get significantly better terms than last year, whilst also reducing the actual exposure into the captive.”


When forming the captive Cryer, supported by RISCS, went through a full domicile selection process with Guernsey coming out as the first choice.

Cryer highlighted the level of expertise and availability of captive managers, the solvency and regulatory requirements and proximity to the London (re)insurance market as key attributes that put Guernsey top of the list.

“The fact that the London reinsurance and insurance market recognises Guernsey as being a credible market for captives,” he added.

“Whilst negotiating those reinsurance agreements, it enabled us to speak directly with both the reinsurer and captive manager and for them to have a relationship and understanding of each other. It enabled us to expedite that process in relation to the formation and the actual agreement.”

Alex Symons, associate director at Aon Insurance Managers in Guernsey, said the capital and regulatory regime in the domicile is a real positive with the lack of Solvency II meaning captives can be regulated in a proportional manner.

“The regulator has always had a policy where they want to encourage innovation, but in a controlled manner, which is quite important for a lot of our clients where they want to look at bringing new products to market that perhaps aren’t available in the commercial space,” he said.

“They want to know that the regulator understands that they might be writing something that’s not completely comparable in the commercial market and they’re comfortable with that.”

Going forward, Cryer said they have thought “long and hard” about what role the captive will play in the next 12 months to three years.

He is open to retaining more risk on existing lines, while adding add more lines to the captive to diversify its portfolio with employee benefits one area they are exploring to understand what the profile looks like globally.