Marsh sees growth in nontraditional captive coverage

Coverage of crime, political risk, trade credit or cyber risk in captive insurers grew by 11 percent last year, according to Marsh’s annual captive benchmarking report.  

The report “The World of Captives: Growth and Opportunities Without Borders,” which analyzes 1,100 captives managed globally by Marsh, found that the steady growth of nontraditional coverages in the captive market is propelled by both the growing sophistication of captive owners and the need to manage new emerging risks through self-insurance, quota share participation or reinsurance.  

Crime coverage is leading the nontraditional ranking, with 44 Marsh-managed captives writing this line of business. The biggest increase, however, came from political risk, where the number of captives that include political risk rose 83 percent in 2014. The number of captives writing cyber liability grew 18 percent. 

Marsh anticipates that this growth will continue, “as captives develop within the middle market, due to the large catastrophic lines of coverage underwritten by small captives and the need for midsize clients to self-insure certain risks, all making them natural fits for a captive.” 

For instance, the number of U.S. captive owners taking advantage of the newly extended Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) is expected to rise in 2015. 

Currently 83 – or 22 percent – of the 374 U.S. captives under Marsh management access TRIPRA by writing either conventional terrorism coverage for property damage or the excluded nuclear, biological, chemical, and radiological perils. 

“One of the surprising findings from this year’s report is that more captive owners are not taking advantage of the U.S. government program, which essentially gives companies a backstop to their property and/or general liability exposures for terrorism risk,” said Christopher Lay, president of Marsh Captive Solutions. “Now that concerns over TRIPRA’s reauthorization have been resolved, we believe growth will resume and more captive owners will investigate the value of adding TRIPRA coverage to their existing captives.” 

The report noted that traditional captives are keen to expand their business by including previously uninsured business lines to protect their parent company against future losses and ensure budget stability. 

Coverages of political risk and trade credit have seen growth for the past five years. Political risk or foreign investment risk coverage is especially popular among captives in the communications, media and technology industry, where 9 percent of the companies included some political risk coverage in their captives. The programs are mainly used to protect exporters and companies with operations in emerging market countries from the volatility in these markets. 

Trade credit coverage, in turn, increases the certainty surrounding accounts receivable, by retaining the risk in captive or by providing a mechanism to access the commercial insurance market to cover the excess over the self-retained risk coverage.