67% of risk managers considering captives: Airmic

A survey of Airmic members has found that 66.7% of risk managers and insurance buyers are considering captives in response to the hard market.

The survey into the harsh market was conducted in August 2020 and looks like good news for the captive community.

“Some 66.7% [of members] said that in response to 2020’s harsh market conditions they would explore use of alternative risk transfer – captives, parametric triggers, capital markets – as opposed to traditional insurance,” Airmic said.

Half of the members surveyed already use captives, while an additional 20% were considering setting one up soon.

Those currently using a captive were ask about captive utilisation, with 37.9% saying they were using their captive for increased retentions.

“Some 31.0% said they were writing new lines of business; 37.9% were using captives for increased retentions; 27.6% were exploring alternative re/insurance markets, such as insurance linked securities (ILS); 13.8% had expanded their use of quota shares or co-insurance structures; and 20.7% had undertaken a complete overhaul or review of their risk financing and captive strategy,” the report said.

The increase in captive interest is mostly due to what Airmic dubbed “dramatic” price increases, especially in D&O.

The survey found that one fifth of members surveyed experienced price rises for directors and officers (D&O) lines of over 400%.

“Broken down by class of business, D&O saw the most exponential rise in pricing,” Airmic said. “A fifth of respondents said they had experienced a rate increase of more than 400%.

“A majority experienced D&O rises of at least 50%, and almost 30% said prices had doubled.”

Across the board the survey found extreme price increases, with 95% of risk managers experiencing price rises, 85% reduced capacity, and 66.7% an increase in inclusions from their insurance partner.

“Hard won trusted relationships are clearly under strain,” John Ludlow, CEO of Airmic, said. “We must work better together to share relevant data with insurers to gain recognition for good risk management.

“Exposures and vulnerabilities poorly managed will be priced harshly but brokers and insurers should seek out well managed risks and price them beneficially to be respected as balanced and fair.”

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