Captives work best in collaboration with commercial market

Airmic’s Captive Ambassador Richard Cutcher moderated a panel featuring Lorraine Stack, International Sales and Consulting Leader at Marsh Captive Solutions, David Vigier

Captives Services and Claims Strategy at HDI Global, Nicolas Deparday, CEO and Chairman of Michelin’s Dublin-domicled captive, Mark Pollard, Chief Operating Officer of MIRIS, and Mike Matthews, commercial director of international business at Artex Risk Solutions.

The panel debated whether the growth in captive insurers and increase in captive premium should be seen as a threat or competition to the commercial market during the recent hard cycle.

“Companies that form captives don’t exit the commercial insurance market,” said Stack. “They still buy insurance, they just do so in a more sophisticated and considered way.

“The reality is when companies form captives, they typically begin by operating in the lower layers, using the captive to cover attritional risks. Once you take away that noise, you can focus the conversation with insurers at a higher level and really concentrate on what you need insurance for which is protecting your balance sheet from volatility.”

“The reality is when companies form captives, they are typically operating in the lower layers, they are taking out the attritional risks. Once you take away that noise, you can speak to insurers at a higher level and really concentrate on what you need insurance for and protecting your balance sheet from volatility.”

HDI’s Vigier explained that commercial insurance partners often look favourably upon companies that own a captive because it presents a more sophisticated programme to underwriters.

“Having a captive or ambitious self-retention in the programme is an indication to the market that the organisation is taking their risk management seriously,” he said.

“Insurers can be a lot more comfortable to provide capacity with adequate attachment points. It can be an indication that the risk manager is mature enough to deal with subjects that are very similar to what an underwriter is dealing with, such as risk prevention, actuarial analysis and claims management.”

Matthews, of Artex Risk Solutions, said he does not believe premium going into captives should be viewed as lost for good because a well-run insurance strategy should be constantly re-assessing the most optimum risk transfer options available.

“An actively managed captive should go through a stewardship process every year, where the manager and sponsor of the captive is constantly re-assessing the use of that captive,” he said.

“That will result in the captive retaining more risk at certain points in the cycle and transferring more or less risk to the (re)insurance markets. So that premium is not lost, per se, it is simply redistributed.

“A captive is not for Christmas, it is for life. It’s not something you should create simply as an immediate reaction to a hard market cycle or purely because you’ve got a difficult renewal.”

Mark Pollard, chief operating officer of European cyber mutual MIRIS which was established in Belgium in December 2022, sai d it was important for its members to understand that it should be used in conjunction with the commercial market, not against it.

“MIRIS is there to supplement the capacity of the market,” he explained. “We’re providing capacity in a range of different layers and different members use us in different ways.”

“Without the conventional market, I wouldn’t be sitting here and MIRIS wouldn’t exist. We’re definitely not trying to take anything away from the conventional market.”