27 April 2017
Reporter: Becky Butcher

Interest in captives on the up, says Aon

More companies are showing an interest in forming new captives or protected cell companies (PCC) over the next five years, especially in North America, Asia Pacific and the Middle East, according to the new Aon Global Risk Management Survey.

The survey found that, currently, companies in North America are more likely to have formed a captive or PCC, with 25 percent confirming that they currently use a captive or PCC, while in the Middle East and Africa this figure is 19 percent.

The equivalent statistic stood at 10 percent for European companies, 8 percent in Latin America and 7 percent in Asia Pacific. Aon explained that this finding is “consistent with what we have seen in our captive business”.

The survey also revealed that 9 percent of North American companies plan on creating a new or additional captive or PCC in the next three years.

Similar figures were also reported in Asia Pacific and the Middle East at 9 and 10 percent, respectively. Aon explained that, although these figures are similar, there were fewer respondents in these regions, most representing larger companies.

In addition, in both Europe and Latin America 4 percent of organisations surveyed said they plan on creating a new or additional captive in the next three years, which Aon called a “material increase”.

Aon commented on these figures: “We suspect that this could be driven by factors such as the confidence gained by most industries from positive economic growth in the last five years, growing interest in captives from middle-market and upper middle-market organisations and continued improvement in the science applied by organisations to assess, quantify and mitigate their own risk.”

The survey also found that the top four industries that own captives are the healthcare, energy, beverages and conglomerate industries.

More than a third of healthcare organisations surveyed, 34 percent, owned a captive, as well as 33 percent of energy companies. Of beverage companies, 31 percent said they own a captive, along with 25 percent of conglomerates.

However, the top industries in which companies plan to create a captive or PCC in the next three years were hotels and hospitality, and machinery and equipment manufacturing, with 14 percent of respondents from each of these industries expressing plans to launch.

In this aspect, the life sciences and energy followed shortly behind, with 11 percent of respondents from these categories planning to launch a new captive or PCC.

In the report, Aon said it was “surprised” that there were no organisations in the printing and publishing or restaurant sectors that reported to have a captive, or that plan to have one in the next three years.

Aon said: “This probably reflects the fact that most participants are smaller companies. In our captive business, we have seen captive usage in these segments, particularly in restaurants.”

Finally, the survey revealed that property damage and business interruption and general liability continue to be the most popular lines underwritten in captives, and the largest lines underwritten, in all regions.

However, lower down the list some regional differences emerged. Workers’ compensation, auto liability and professional liability ranking highly for organisations in North America, while companies in Europe showed they are more concerned with product liability.

However, the survey results showed that there has been an increase use of captive to underwrite cyber or network liability, employee benefits, credit and warranty.

While 12 percent of respondents currently use a captive to underwrite cyber or network coverage, 23 percent said they plan to underwrite this in the future. Equally, 10 percent currently use a captive to underwrite employee benefits, and 20 percent plan to in the future, while credit and trade underwriting is expected to rise from 10 to 18 percent and warranty underwriting is expected to increase from 2 percent to 7 percent.

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