New European captive domiciles are seeing growth in company formations, including redomicilations from other jurisdictions, according to AM Best.
In a new report, the agency reveals that France is leading the way in terms of new captive formations in Europe in 2023 and 2024. In 2023, five new captive licences were added in France, and in 2024, at least another three groups have received captive licences in the country too, and more are expected in the remainder of the year and in 2025.
Moreover, the growth in captive formations in France follows on from the introduction of new regulations to encourage companies to establish captives domestically.
However, whilst fast-growing, France is a relatively new and modest captive domicile, with an estimated total of 15 captives licensed at the end of 2023.
In addition, AM Best’s analysis suggests that Guernsey has maintained the top spot among European captive domiciles, with 199 captives at the end of 2023, down from 203 the year before.
Luxembourg sits in second place, where the number of captives remained steady at 195, with five new licences and five closures in 2023. The third position is held by the Isle of Man with a total of 85 captives licenced, up from 82 at year-end 2022.
Meanwhile, captive numbers across Switzerland, Malta and Gibraltar remain broadly flat, according to AM Best.
Switching over to Italy, there is currently no specific captive legislation in the country. Nonetheless, two captives were licensed in 2023, both with Italian corporate parents.
AM Best also noted that the UK is considering different ways to enhance and boost its attractiveness as a domicile for captives.
In November, the newly elected Labour government confirmed that it is consulting on the potential of for a new approach to captive insurers, with the aim of supporting the competitiveness of the UK insurance sector.
It’s worth noting that where captives are successful, they have a clear understanding of the risks and requirements of their parent companies, and are able to appropriately assess the risks and provide suitable covers, especially for larger risks such as cyber, property and business interruption.
“In an increasingly volatile global risk landscape and a hardening insurance market, captives have proven to be a cost-effective risk management tool. In addition, captives have been at the forefront of insuring traditional property and casualty risks, and providing coverage for other lines of business which have faced capacity constraints such as cyber, certain liability risks and credit,” AM Best commented.
The agency also stated that over 2023 and 2024, reinsurance placements have been challenging for primary insurers, given the hard reinsurance market cycle.
“Many captives have a high reinsurance dependence in order to offer the large limits required by their parent companies. Nonetheless, captives have navigated the challenging reinsurance renewals well given their generally favourable claims history. Capacity has been available to captives with a good track record of underwriting discipline, albeit prices have typically been higher than before the onset of the hard market,” AM Best added.
Lastly, while the reinsurance market has delivered strong results in 2023 and the first half of 2024, recent major weather events, including the hurricane’s in Florida and severe flooding in Europe, are expected to push reinsurers to at least maintain the current pricing levels.
AM Best concludes by stating that it expects 2025 to be another year of challenging renewals.
