The spike in captive insurance company formations gained even greater momentum last year as more companies looked to balance their insurance purchasing with increased risk retention, according to a report by insurance broker and risk advisor Marsh.
According to its 2021 Captive Landscape Report, Marsh helped clients form more than 100 captives in 2020, nearly double the historic rate of annual formations. Protected or segregated cell companies posted the largest increase in new formations, spiking 53% year over year.
Cell companies can be easier and quicker to set up than regular captive insurance companies, according to Marsh. That ease may have spurred their steep growth during the COVID-19 pandemic. Significant price increases and capacity shortages in the global directors and officers liability market also drove the rise, as a number of organizations formed cell companies last year in order to secure D&O coverage. D&O premiums written by Marsh-managed captives rose by 50% last year, according to the report.
“Captives enable organizations of all sizes to better manage their costs and take greater control of their insurance programs, which is making them a hugely popular risk-financing mechanism in today’s challenging market,” said Ellen Charnley, president of Marsh Captive Solutions. “We continue to see growth in 2021 in nearly all captive domiciles around the world from existing captives as well as new formations. We are on track to form a significant number of captives this year.”
Charnley said that Marsh had seen significant interest from organizations wanting to self-insure cyber exposure through a captive this year.
“The growth in non-traditional risks such as cyber – which was not written by captives a decade ago – is another sign of the value they provide in helping firms solve challenges and support strategic objectives,” she said.
Marsh saw a 13% increase in the number of captives writing cyber risk last year, as well as a 54% rise in net premiums written in the class.