LOOKING AHEAD
A BRIGHT FUTURE
Captive insurance continues to prove its irrepressible utility. Here, we take a brief snapshot of future expectations.
T
here appears to be an increasing disconnect between the commercial market cycle and captive formations. While in the past formations waxed and waned with the commercial cycle, nowadays parent companies are deploying captives
for increasingly strategic reasons. This should mean that a steadier fl ow of formations and captive employment will be the order of the day going forward.
Captive use among small and medium-sized fi rms is also likely to increase as the community tailors smaller captive types to the needs of middle market fi rms. The number of domiciles that encourage the use of captive insurance for smaller owners including risk retention groups, cell structures, group and association captives all aim to fulfi l the demands of a growing and increasingly disparate group of parent companies.
Parent fi rms are also increasingly looking to their captives to write new lines of business—particularly in the face of a potentially hardening commercial market—as well as add exclusions to their programmes. Issues such as the Patient Protection and Affordable Care Act in the US will also encourage fi rms to explore the potential of self-insurance, with compulsory employee benefi ts continuing to be a signifi cant driver of captive programmes.
The domicile choice looks set to continue to grow, both in mature regions developed insurance markets like the US, where even more states are contemplating legislation in addition to the 29 that already have it, and in emerging regions such as the Middle East and Asia. At
130 CICA | Forty years of captive leadership
the same time, captive numbers and premiums written continue to rise as the value of captive entities continues to gain ground.
There will also be challenges for the captive community. Chief among these will be regulation, with the onerous Solvency II initiative perhaps the most obvious example. How exactly captives will be treated under the fi nal regime remains a matter of some debate. The regime does have the potential to be burdensome, but there are moves afoot to assuage the needs of the captive community. Some jurisdictions, notably Cayman and Guernsey as well as all the US domiciles, have either opted out of the regime or aren’t yet included, so there will be an interesting future dynamic as Solvency II and its European and then global implications are rolled out across the community.
Developing IFRS accounting standards and a more predatory tax collection position following the fi nancial crisis are also likely to present challenges for the captive community. Governance requirements will require owners to ensure that they are employing captives for the right reasons and have the right systems and paperwork in place to ensure this. The captive community has weathered the storms of regulation and taxation in the past, and will continue to do so. The continuing utility of captives and the growing experience of the captive community will mean that heading off such concerns should not present any great challenge.
Captives have, over time, proven their value. Their future looks set to be no less signifi cant. ●
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