Survey results show optimism for captives in the current economic climate.
Uncertainty caused by the current economic crisis may lead to an increase in captive formations, according to a survey of delegates at the Isle of Man Captive Conference in London last month.
Over 80% of delegates believed that the current economic conditions present an opportunity for captives, although some cautioned that the economy may have to stabilise first before prospective captive owners would be willing to commit capital to a new captive.
Over 90% of delegates also forecast a hardening of the insurance market over the next 12 to 18 months, with some delegates indicating that they had already experienced rate increases on recent renewal. The hardening market is also a contributing factor to the predicted increase in captive formations.
The survey also found that current difficulties in the banking sector led many delegates to conclude that captives may find harder and more expensive to establish letters of credit, which means that captives may have to seek alternative solutions to satisfy the requirements of fronting companies.
The tremendous growth potential of the economies in China and India was identified by delegates as a key driver in increasing the amount of captive formations worldwide. However, most respondents cautioned that any such growth is unlikely to materialise in the short term and would require a significant relaxation of stringent regulations in China and India.
Derek Patience, head of Marsh’s captive management office in the Isle of Man and chairman of the Manx Insurance Managers Association (MIMA), said: “The findings of the survey and responses from the delegates highlight that there is still a tremendous potential for growth in the captive sector. Concerns about the current economic situation and view that a hardening insurance market will soon likely be with us are key drivers for the growth in captives in the short term.
“The Isle of Man is well positioned to take advantage of any new captive opportunities. We have a stable political environment, a pragmatic approach to regulation, a wide range of captive structures, competitive capital and solvency requirements and the incorporation process is straight-forward and swift.”
