TORONTO, April 10, 2008 — Marsh, the world’s leading insurance broker and risk adviser, today released the first ever global benchmarking report examining the use of captive insurance companies by today’s global firms.
Although annual captive premium income is estimated at $55 billion – $60 billion, Marsh’s report, Next Generation Captives – Optimizing Opportunities, is the first detailed look at how their use compares by region, by domicile, and by industry. The report found that while captives are significantly better capitalized than required by current levels of risk assumption, many are not optimizing their captive structure.
Other key findings include:
- The cumulative number of captives has increased at a steady rate since the early 1980s.
- US companies own 57% of the world’s captives and all companies that comprise the Dow Jones 30 own captives.
- UK, French and Swedish companies are, respectively, the second, third and fourth most prolific owners of captives.
- Bermuda is the most popular domicile for captives, accounting for 29% of the total. However, altogether, the US-based captive domiciles now account for 30% of the total. Among European captive domiciles, Guernsey continues to have the largest number of captives.
- Financial institutions account for 20% of all captives, with healthcare companies owning 11% and manufacturers 10%.
- Captives are used for a variety of risks, with 20% of business underwritten being for property damage, 18% for general or third party liability and 12% employers’ liability and workers’ compensation.
- Almost half of captives are currently achieving a return on capital employed of greater than 10%. However, more than one-third have a return of 5% or less.
- Globally, almost 60% of captives do not use reinsurance. When considered in conjunction with the level of retained profits held by captives, this suggests that most captive business continues to be profitable. There is also evidence that once a company decides to pay premium to a captive, versus the general insurance market, a significant majority of that premium is permanently removed from the market.
Michael Cormier, chief executive officer of Marsh’s Captive Solutions Group, said, “As the insurance and reinsurance markets have changed over the past 40 years, one of the few constants has been the steady development of captive growth. As their number continues to grow, even through soft insurance cycles, it is clear that captives are here to stay.”
With respect to specific captive domiciles Jonathan Groves, head of Captive Consulting for Marsh in Europe, the Middle East and Africa, said, “Locations such as Bermuda, Guernsey and Luxembourg have seen their proportion of new captives fall as a percentage of the total, while US states like South Carolina have increased their share.
“Our experience reflects two primary reasons for this: first, captive formations tend to be in the same region as their owner and, second, with the overall increase in domiciles globally, it is becoming harder for offshore locations to differentiate themselves. While Luxembourg enjoys advantages by being within the EU, it is increasingly facing strong competition from domiciles such as Malta.”
Marsh has 26,000 employees and provides advice and transactional capabilities to clients in over 100 countries. Marsh is a unit of Marsh & McLennan Companies (MMC), a global professional services firm with more than 55,000 employees and annual revenue exceeding $11 billion. MMC also is the parent company of Guy Carpenter, the risk and reinsurance specialist; Mercer, the provider of HR and related financial advice and services; Oliver Wyman, the management consultancy; and Kroll, the risk consulting firm. MMC’s stock (ticker symbol: MMC) is listed on the New York, Chicago and London stock exchanges. MMC’s Web Site is www.mmc.com. Marsh’s Web site is www.marsh.com.Tags: outlook, report, Valen Analytics