Marsh Report Finds More UK Captives

A study from Marsh’s London office finds that “UK companies increasingly are considering captive formation, driven by a desire to implement sophisticated risk management regimes and address the total cost of risk.”

Marsh’s report indicates that “many companies are enjoying a range of benefits to their risk and insurance program from forming a captive. It also shows that the number of captives owned by a UK parent continues to increase. Traditionally, their formation has been in response to hardening insurance rates. However, captives are increasingly fulfilling broader strategic risk management aims.”

Jonathan Groves, Head of Captive Consulting at Marsh, commented: “Whilst the majority of FTSE 100 companies already own one or more captives, there is significant interest growing among FTSE 250 and mid-size unlisted companies as they realise the potential benefits. The increasing ability of captives to write specialist risks, as well as traditional casualty and property lines, means that captives now have a closer fit with organisations’ unique risk profiles and requirements.

“The report shows that many companies are already benefiting, both strategically and financially, from operating a captive. It is important for companies to review their captive arrangements regularly in order to take a more effective and efficient approach to managing their risks.”

The report also examines the use of captives by industry identifying the financial services, manufacturing and service supply industries as the three sectors owning the most number of captives.

“The high level of captive use in certain industries is in part historic,” Groves continued. “Many financial institutions established captives to address mortgage indemnity guarantee risks during the 1990s and the majority of utilities at privatisation formed captives to manage historic liability exposures.

“Other industries, such as energy, have made significant utilisation of captives over the past 30 years given their exposure profile and variations in the capacity available in the insurance market. This aside, it is clear that the three industries that are making most use of captives – financial services, manufacturing and service supply – represent less ‘risky’ industries, reflecting the need for captives for everyday property and casualty risks.”

The report also examines where UK companies are choosing to locate their captives. Groves noted: “The increased benefits and proximity to the UK of offshore domiciles, such as Guernsey and the Isle of Man, have detracted from formations in Bermuda; we believe this trend will continue. We also expect Malta to increase its number of captive formations as it benefits from its membership of the European Union.”