Captive Solutions Practice. Next Generation Captives Retail Benchmark

Transcription

1 Captive Solutions Practice Next Generation Captives Retail Benchmark

2 Contents Introduction 1 Domicile 2 Lines of Business 2 Exposure Levels 3 Capitalization 4

3 Retail Benchmark Next Generation Captives Using its knowledge and information about the global captive market, Marsh has undertaken an in-depth study into the use of captives and how they interact and perform in today s risk financing environment. The benchmarking data in this report was collected between September and December 2007 and is presented and compared in the following groups: Captives of Retail companies in the Americas region i.e. captives with a Retail parent company in the Americas Captives in the Americas i.e. captives with a parent company in the Americas irrespective of industry Captives Globally i.e. captives irrespective of parent company location and industry Our analysis revealed that based on current information there are approximately 2,750 captives that are owned by publicly identifiable companies (e.g. one specific firm can be identified as shareholder/ parent). Our survey group included 900 such captives representing 33% of the global market. This group includes 54 captives owned by retail companies in the Americas region. Marsh Retail Benchmark 1

4 Domicile Bermuda has an extensive history with the captive market and it is therefore not surprising that they are the dominant domicile for retail captives in the Americas with 55% of market share followed by Vermont with 2. Ireland represents 7% of market share in the Americas region. Americas Retail Domicile US Vermont 2 US Utah US New York US South Carolina US D.C. US Hawaii Ireland 7% Cayman Bermuda 55% Lines of Business The top three lines of business written for retail captives in the Americas are Workers Compensation, General Liability/Third Party Liability and Property Damage. This is not surprising given that these are also the most popular lines of business being written by captives globally. Americas Retail Business Underwritten by Captives Property Damage 19% Other 8% Crime/Fidelity Warranty 3% Auto Liability 1 Employer s Liability/WC 2 Product Liability 6% Marine General/Third Party Liability 2 Financial Products Other includes: Environmental and Life Financial Products includes: Mortgage insurance, Surety bonds 2 Retail Benchmark Marsh

5 Global Business Underwritten by Captives Property Damage 20% Other 15% Auto Liability 9% Employers Liability/ Workers Compensation 1 Financial Products 6% Professional Indemnity 8% Product Liability Marine Health/Medical General/Third Party Liability 18% Other includes: Aviation, Credit, Crime/Fidelity, Directors and Officers Liability, Errors and Omissions, Environmental, Life, Warranty, Other Financial Products includes: Mortgage insurance, Surety bonds Exposure Levels The risk of adverse underwriting results is a focal area for all captive owners. Methods to limit exposure include ensuring appropriate aggregate stop loss levels and protection from the purchase of reinsurance. The chart on the following page illustrates the exposure levels that captives assume for the risks they retain. The comparisons are made between all global captives, all captives in the Americas region and those with a retail parent in the Americas region. As you can see the majority of retail captives have occurrence limits of less than US$5 million. Retail Occurrence Limits Underwritten Percentage of lines of business 20% 15% 10% 5% 11% 3% 16% 1 1 8% 9% 9% 3% 13% Retail Americas Global 0% 1 - <50K 50K - <250K 250K - <500K 500K - <1M 1M - <2.5M 2.5M - <5.0M 5.0M - <10M 10M - <25M 25M - <50M 50M - <100M 100M - <250M 250M - <500M 500M - <1 Bn 1Bn or greater Occurrence limit banding Marsh Retail Benchmark 3 3

6 It is interesting to note that almost 70% of retail captives operate on an unaggregated basis, which is well above the average for all captives in the Americas region and globally. 80% Retail Aggregate Exposure Limits Percentage of lines of business 70% 60% 50% 40% 30% 20% 10% 0% 1 - <50K 50K - <250K 9% 6% 5% 3% 250K - <500K 500K - <1M 1M - <2.5M 2.5M - <5.0M 5.0M - <10M 10M - <25M 25M - <50M 50M - <100M Aggregate exposure limit banding 100M - <250M 250M - <500M 500M - <1 Bn None/ 1Bn or Unlimited greater 70% Retail Americas Global Capitalization Levels of capitalization vary significantly between captives, dependent on parent company industry, parent company geography, captive domicile and exposures retained in the captive. The chart below illustrates the comparison between retail captives in the Americas region and all captives globally. It is interesting to note that 18% of retail captives maintain equity of greater than US $50 million, this stems from the fact that 70% of retail captives operate on an unaggregated basis. Retail Equity Banding Percentage of Captives 25% 20% 15% 10% 5% 10% 18% 18% 18% 6% 1 1 Retail Americas Global 0% 0 to 1m 1m to 3m 3m to 5m 5m to 10m 10m to 20m 20m to 50m 50m+ Equity Banding 4 Retail Benchmark Marsh

7 Marsh Captive Solutions Benchmarking Services Marsh intends to release a captive benchmarking report annually, looking at a variety of different criteria. This will enable us, over time, to identify trends and report on new and emerging captive uses. Although we have researched a vast amount of data on captives and on retail companies and are providing this benchmarking report, there are times when a company with a captive or a company thinking about captive ownership wants to benchmark itself on a number of different criteria than are presented here. We at Marsh can provide you with customized benchmarking based on our global research. Benchmarking against your peers demonstrates excellent corporate governance and enables you to review, adjust and use your potential or existing captive to an optimum level. Marsh believes captives that pursue a clear strategy and adjust tactics to leverage capital and their insurers are part of the new generation. Decisions on setting up or retaining a captive are seldom clear-cut, and it is important that organizations ensure that their reasons remain relevant and optimal. As a global leader in captive solutions, Marsh can provide objective, specialist advice on the strategic and practical matters relating to a captive. The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy. Marsh makes no representations or warranties, expressed or implied, concerning the application of policy wordings or of the financial condition or solvency of insurers or reinsurers. The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation, and should not be relied upon as such. Statements concerning tax and/or legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as tax and/or legal advice, which we are not authorized to provide. Insureds should consult their own qualified insurance, tax, and/or legal advisors regarding specific coverage and other issues. This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Marsh Inc., except that clients of any of the MMC companies need not obtain such permission when using this report for their internal purposes, as long as this page is included with all such copies or reproductions. Marsh is part of the family of MMC companies, Guy Carpenter, Mercer, and the Oliver Wyman Group (including Lippincott and NERA Economic Consulting). Copyright 2008 Marsh Inc. All rights reserved. Compliance #MA

8 For further information on any captive related issues, please contact a representative from Marsh Captive Solutions Group, listed below. Scott Gemmell Vice President Marsh Tel: [email protected] Michael Serricchio Vice President Marsh Tel: [email protected] Khim Chia Assistant Vice President Marsh Tel : [email protected] Jeanette Conway Marsh Tel: [email protected]