Wilton Captive Services Hard market and industry disruptions creating new captive opportunities

Traditional insurance markets are now facing hardening premiums and these are likely to harden further following disruption from events like the COVID-19 pandemic and potential new competitors. This opens the opportunity for High Net Worth and Private Family Offices to consider the establishment and implementation of their own captive insurance company to address and contain risk and cost management controls.

Hard insurance markets are characterised by high demand for insurance and a reduced supply. During hard markets, insurers often impose strict underwriting standards and issue a limited number of policies while the cost of premiums continue to rise. We are already seeing restriction in capacity, increased retentions, leading to premium rates going up on all insurance lines. 

This presents the perfect opportunity for High Net Worth and Private Family Offices to consider establishing their own captive insurer. Hardening markets become drivers for alternative risk transfer options, which, of course, captives are at the heart of. The ideal is a long-term focus, and it should be tied to long-term risk financing strategies that are ideally aligned with an overall risk strategy. Perhaps the reverse way to think about this matter?

A company considering establishing a captive to address a hard market must view the move as a marathon rather than a sprint, they are not a short-term fix. There has to be a commitment to build the captive and not consider it an option for a couple of years.

It’s also possible to approach risk as a portfolio of exposures across areas like hazard risks, operational risks, market risks, and human capital risks, rather than considering each individually. Thinking about risk as a portfolio of exposures which can help mitigate the impact of volatility in any one exposure, much as a portfolio of stocks helps mitigate exposure to the volatility of any individual stock. The question is, the risk profile the High Net Worth/Private Family Offices is willing to take matched against their mitigation strategy?

Wilton work with their clients to design captive strategies and walk them through the establishment process.

To find out more please follow the link: Wilton Captive Services.