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Captive use rises amid pandemic volatility: Marsh

21st September 2020 - Author: Matt Sheehan

According to insurance broker Marsh, more organizations are turning to captives for insurance protection and financial flexibility in response to an increasingly difficult risk landscape.

marsh-logoIn its 2020 Captive Landscape Report, Marsh reported that tightening global insurance market conditions throughout 2019 have led to higher captive utilization with steep premium volume growth in several coverage lines.

For example, supply chain, business interruption, and contingent business interruption premiums written by Marsh-managed captives rose 283% on average in 2019.

All-risk property premiums similarly rose 64% on average, led by the energy and financial institutions sectors, which saw all-risk property premiums rise 151% and 104%, respectively.

And the trend towards greater captive use has continued in the first half of 2020 amid increasingly challenging insurance market conditions and the impact of the global COVID-19 pandemic.

“Marsh formed a record 76 new captive insurance companies from January through July this year, up over 200% compared to the same period in 2019,” said Ellen Charnley, President of Marsh Captive Solutions.

“While none of the new captives formed so far in 2020 specifically cover pandemic-related losses, organizations are using their captives to help navigate them through the global COVID-19 pandemic,” she continued.

“Financial flexibility is one of the key advantages of owning captives, and since March 2020, Marsh has helped owners free $3 billion from their captives using short-term liquidity tactics, such as intercompany lending, to help them respond to cash-flow challenges brought on by the pandemic.”

Marsh believes that the ability to design customized insurance coverages, access alternative capital, and generate profits through third-party business makes captives especially valuable during market transitions.

As the global insurance market continues to tighten in response to the pandemic, captives may be able to help organizations become more agile in responding to risks and protecting their people and assets, the broker suggests.

“Captives have stood the test of time as effective tools to navigate through uncertainty,” Charnley went on. “As the 13th annual edition of Marsh’s Captive Landscape shows, premium growth in captive insurers continues to accelerate, a sign of their strength in protecting people and infrastructure.”

“This growth signals that owners recognize captives’ advantages, which include cost efficiencies and flexibility in protecting financial and human capital.”

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