Onshore captives on the rise, says Marsh

Organisations are increasingly forming captives onshore in the European Union or United States, while the use of alternative captive structures is growing, especially among smaller organisations, according to Marsh.

The trends were identified in Marsh's 2012 Captive Benchmarking Report, released today at the 2012 Annual Conference of the Risk and Insurance Management Society.

The report, Integral and Mainstream-Captives in 21st Century Risk Management, is based on the activities of more than 1,200 captive insurance companies, primarily single-parent captives with US or European owners.

Marsh found that 65% of the captives formed from 1991 to 2000 were domiciled in offshore locations including Bermuda, Cayman Islands, Guernsey and Isle of Man, while 35% stayed onshore.

Over the past decade, 52% of the captives formed from 2001 to 2011 were established onshore, compared to 48% offshore.

"The movement to a more balanced overall split between onshore and offshore domiciles is due to many factors, including travel costs, changing insurance regulations, and potential savings on certain premium tax payments for captive placements," said Michael Cormier, CEO of Marsh Risk Solutions, which encompasses Marsh's Global Captive Solutions Practice.

The report also shows a greater number of multi-owner captive structures being formed in recent years, including rent-a-captives, protected cell companies and risk retention groups.

These vehicles not only formalise risk finance but may operate at lower cost, and with lower cost of capital requirements, than traditional single-parent captives.

According to Marsh's report, financial institutions remain the largest users of captives with a 21% share of the total, compared to 20% in 2008.

However, the largest increase in captive formations over the past four years was in healthcare, representing 17% of Marsh's captive clients in 2012, compared with 11% in 2008.

In other highlights, captive owners in the US are reportedly increasingly assessing the viability of assuming employee benefits risks, while real estate captive owners have been inquiring about captive financing for tenant default insurance.

Cyber insurance is also increasingly being considered for captive financing, especially among retail and consumer product companies, Marsh said.