Corporations' captive insurance companies are increasingly being set up onshore, rather than making their homes in offshore locations such as Bermuda, according to an annual survey of the captive industry by Marsh Risk Solutions. The survey shows that 52% of captives established from 2001 to 2011 were set up onshore, vs. 27% of those established from 1991 to 2001.
Michael Cormier, CEO of Marsh Risk Solutions, says the shift reflects the maturation of the captive industry. And with more than 30 U.S. states now able to serve as captive domiciles, "there's more choice available onshore that meets the needs of our clients," he says.
Vermont, which is home to 57% of the captives owned by North American companies, remains the leading U.S. domicile.
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A U.S. domicile means the captive is closer to headquarters, reducing travel time, and also lets the company reassure board members who might be nervous about an offshore captive, Cormier says.
Captive formations soared during the last decade, and Cormier doesn't expect growth to continue at that pace in the next 10 years. But he notes that "the premium equivalent that's going into captives continues to increase.
"As captive owners become more confident in the way the captive is working for them, they start to think, 'How else can we use this?'" he says, but notes that companies with captives are also "more opportunistic" than before. If they see a chance to insure a risk more economically by buying coverage in the market, they'll take that business out of the captive, Cormier says. "If it makes sense for them to own the risk, then they'll do that."
Marsh sees increasing growth in alternative captive structures, such as rent-a-captives and risk retention groups. Cormier says those types of captives are more attractive to middle-market companies, which make up a bigger portion of those currently establishing captives.
Captives most frequently provide property coverage, which was cited by 35% of the survey respondents, followed by general/third party liability (32%) and employers' liability/workers compensation (20%).
The Marsh survey also looks at finances. The 1,200 captives it surveyed have a ratio of gross premiums to net assets of 44%. Their ratio of underwriting expenses to gross premiums is 89%, while operating expenses constitute 2% of their gross premiums.
To read about companies using captives for pension purposes, see Companies Use Captives to Fund Pension Benefits.
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