This current market is a great opportunity for captives to demonstrate their lasting value to their parents and to the global insurance industry as a whole. The global insurance and reinsurance markets are suffering from the impact of COVID-19 claims, which are likely to cost the market circa USD100bn in insured losses. At the same time, it is also being negatively impacted by the fall in equities and interest rates plus the economic downturn which will result in businesses reducing their insurance purchases as a result of client insolvency, reduced inventory values, reduced turnover and so on.
Some market commentators are suggesting that the total insurance and economic loss to the global insurance and reinsurance market will be circa USD203bn. In this environment, it is not surprising that markets are recalibrating their risk tolerance appetite and their pricing outlook. Captives and their parents should see this as an opportunity to do the same.
The headwinds in the market were already clear last year. In a survey conducted by Principal Re in June 2019, 90% of the respondents (underwriters, brokers and risk managers) concluded that rates would increase for businesses that had enjoyed a loss-free record and 60% expected to see deductibles increase or come under severe pressure. Today, these headwinds have become a reality as we see the pressures brought on by the “Four Horsemen of the Hardening Market” looming large across all businesses, all geographies, and all classes of insurance.
The pressure is being felt in terms of: