Bermuda’s latest competition for captive insurance business could very well come from the European continent, where captive interest is growing, driven by forces that include the hard commercial insurance market.

This, even though a new AM Best report says that “outward reinsurance capacity for captives remains tight and pricey”.

The report’s main thrust is found in its title: “Captive Insurer Numbers Set to Grow in Europe as More Jurisdictions Seek to Lure Companies”.

It forecasts the growth in European captives will come this year and next as more jurisdictions seek captive business.

It concedes that numbers are somewhat harder to come by in Europe because the main domiciles do not report captive statistics in a consistent fashion.

And it foresees some effect on the market by new Solvency II amendments in a couple of years and the coming requirements of IFRS 17, where the levels of preparedness, they say, vary among captives. Some are still working towards being ready for the year-end 2023 reporting deadline.

The top trio of Guernsey, Luxembourg and the Isle of Man added to their captive numbers in 2022, AM Best believes, as did smaller domiciles such as Ireland and Switzerland.

The report said: “Guernsey retook the top spot among European captive domiciles, adding 12 new captive licences during 2022 [three licences were surrendered], followed by Luxembourg and the Isle of Man.

“Smaller established domiciles including Ireland and Switzerland also approved new captive licences during the year. Captive numbers in other domiciles including Sweden, Malta and Gibraltar appear to have remained broadly flat.”

There is also a push by bigger European countries, non-traditional captive domiciles, now seeking to play a larger role in the captive movement.

The report noted: “France adopted new regulation to help captives establish domestically. France has one of the highest number of corporates with a captive, but up to now, most were domiciled abroad, in established captive domiciles.

“Since 2020, 13 captive insurance companies have been approved by the domestic regulator, nine of which are reinsurance companies. This trend is expected to continue, with the risk manager association AMRAE identifying over 50 French corporates with plans to set up a captive in France in the short to medium term.

“The new legislation appears to be appealing to companies outside of the country too, as illustrated by the recent decision by HDI Global SE to set up its alternative risk transfer activities in Paris.”

Best also said that the City of London is exploring adopting a captive insurance framework as part of the London Market Group’s road map to improving the business environment for risk transfer in Britain.

Italy is also considering ways to be more attractive to captive development: “In Italy, the domestic risk management association ANRA has been lobbying the insurance regulator to authorise and regulate captive insurers in the country.

“It has been reported that in 2023, a couple of Italian-owned captives began the process of re-domesticating back to Italy after negotiations with the regulator IVASS neared agreement.”

The upward trajectory of commercial insurance rates since 2018, followed by the more recent inflation-related adjustments, have been accompanied by increases in deductibles and other programme restructuring to adjust for increased asset values.

“Casualty lines, in particular, experienced significant price increases, as insurers responded to the impact on loss experience of social inflation stemming from increased litigation and so-called ‘nuclear’ verdicts.

“AM Best has observed an increase in the use of existing captives in response to the hardening market conditions as owners seek optimal risk transfer solutions. Several captives have increased their participation on existing covers as well as expanded into new lines of business as their parents have looked at increasing captive utilisation.

“As an example, the significant hardening of the cyber market has led to more captives writing cyber covers. Commercial covers are often restrictive, with numerous contract exclusions, as well as coverage limits, which may not fully meet companies’ needs.”

AM Best has noted that companies with better data have access to better cyber insurance coverage.

“As a group risk management tool, captives have a strong understanding of their parents, with privileged access to risk information and data, and are able to design more specific and tailored covers. Despite this, typically captives chose to take a share of a commercial cyber programme rather than providing specific coverage.”