Soft market sees group captive decline but SME growth

At this year’s Vermont Captive Insurance Association (VCIA) conference, a seminar on the impact of the soft market concluded that groups had been hit hard but there were captive opportunities for small and medium-sized parent companies.  

Michael O’Malley, managing director with Strategic Risk Solutions said that group captives are more susceptible to pressure from the commercial market with some members being lost to commercial insurers.   

O’Malley said that a recent A.M. Best study indicated that “the soft market is here to stay,” probably remaining through to 2010.   

Malley also pointed to the direct correlation between a substantial drop in captive formations and negative growth in premiums. Amongst homebuilder RRGs in particular, premiums have declined by 34% on last year’s figures. 

Raymond Rocchio, Jr., vice president of specialty markets for PMA Insurance Group, said that his company had nevertheless seen captive opportunities in the US$3-5m premium range.   

“There are not a lot of fronters who will entertain this size of programme,” he conceded, “But we still see some opportunities out in the marketplace.”   

Rocchio noted that while it has become very difficult and expensive to set up letters of credit for new captives, existing operations are making the most of the soft market in other way.   

“Fast food operations are experiencing growth and are putting together programmes while reinsurance capacity is good,” he said.   

Steve Bauman, SVP and head of captive services for reinsurance giant Zurich in North America says that the traditional captive utilisation market – including fronting, reinsurance and claims management – has experienced an uptick in single parent captive business.   

“People are not abandoning captives because of a soft market,” he said. “Captive programmes may shrink a little but they won’t evaporate.”   

Brian Mercer, principal of Integro’s San Francisco consulting practice says that the soft market has been helpful to the captive consulting market. “It’s a good time for optimizing captive structures,” he said.